Also known as Average Options
This type of option has its payoff determined by the average price of the underlying over a defined period of time.
These options are path dependent
The settled amount is the difference between the strike price and the average price over a defined period.
This average can be a geometric average or an arithmetric average.
One advantage is that they reduce the risk of market manipulation of the underlying asset at maturity.
How to Price
Variance Gamma model can be efficiently implemented when pricing these options.
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