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Graphical Representation of Option Price and Sensitivities

*Average Rate Options* are options, also known as *Average Price Options*,

where the payoff depends on the average price of the underlying asset during at least some part of the life of the option.

The payoff from an *average rate call* is max(0, S_{ave}-X), and that from an *average rate put* is max(0, X-S_{ave})

where S_{ave} is the average value of the underlying asset calculated over some predetermined averaging period.

Another type of average option is known as *Average Strike Options.*

Its payoff depends on the average price of the strike during at least some part of the life
of the option.

The payoff from an *average strike call* is max(0, X_{ave}-X),
and that from an *average strike put* is max(0, X-X_{ave}) where X_{ave}
is the average value for the strikes over some predetermined averaging period.

*Average Rate Options* and *Average Strike Options* are called *Asian Options*.

*Asian Options* are generally less expensive than regular options and are arguably more
appropriate than regular options for meeting some of the needs of corporate treasurers.

This model is targeted at markets for thinly traded assets.

Pricing Models Page Available is a Swing Java Jar File if you just wish to run the models.