At inception,which of the following options would have the lowest value? Assume that the strike price of all the options is set equal to the current price of the underlying stock.
A)Arithmetic average Asian call option.
B)Geometric average Asian call option.
C)Vanilla European call.
D)Vanilla American call.

Question

Quizplus · Accepted Answer

Asian calls cost less than vanilla calls and,since the geometric average is smaller than the arithmetic average,the geometric-average Asian option has the lower payoff of the two Asian options.

At Inception,which of the Following Options Would Have the Lowest