Previous Topic

Next Topic

Geometric Average-Rate Options

Geometric average-rate options are priced using the Generalised Black-Scholes pricing formulae, with an adjusted volatility and cost of carry. The adjusted volatility set equal to

and the adjusted cost of carry is set to

where

= The volatility of the relative price of the underlying asset.

b = The cost of carry.

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.