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

At inception, the geometric average Asian call option would have the lowest value because it is always less sensitive to changes in the underlying stock price compared to arithmetic average Asian call option, vanilla European call, and vanilla American call, which all have intrinsic value at inception. The geometric Asian option only has value if the stock price is significantly above the strike price at expiration.

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