Which of the following statements is most valid?
A)Asian options are useful for hedging risk to markets in Asia.
B)Asian options are usually more expensive than vanilla options because they are exotic.
C)Asian options are useful for hedging exposure to the average price of a security or commodity.
D)Asian options are more sensitive to volatility than vanilla options.

Question

Quizplus · Accepted Answer

Asian options are designed to pay out based on the average price of the underlying asset over a certain period of time. This makes them useful for hedging exposure to the average price of a security or commodity. Option A is incorrect as Asian options can be used to hedge risk in markets outside of Asia as well. Option B is incorrect as the price of an option is determined by various factors, not just its classification as exotic. Option D is also incorrect as Asian options may be less sensitive to volatility than vanilla options, depending on the specific details of the option contract.

Which of the Following Statements Is Most Valid