For Asian options the payoff is determined by the average underlying price over some pre-set period of time.

More generally though, simulation is employed for path dependent exotic derivatives, such as Asian options.

An Asian option (or average value option) is a special type of option contract.

There are numerous permutations of Asian option; the most basic are listed below:

Within Lévy models the pricing problem for geometrically Asian options can still be solved.

Asian options were originated in commodity markets to prevent option traders from attempting to manipulate the price of the underlying security on the exercise date.

One advantage of Asian options is that these reduce the risk of market manipulation of the underlying instrument at maturity.

Sometimes these products can take the form of exotic options (for example Asian options or Quanto options).

The technique is thus widely used in valuing path dependent structures like lookback- and Asian options and in real options analysis.

Lemmens et al. construct bounds for arithmetic Asian options for several Lévy models including the variance gamma model.

This can then be extended to more complicated options such as Asian options and conditions, baskets of options and eventually portfolio evaluation and hedging.

A discussion of the problem of pricing Asian options with Monte Carlo methods is given in a paper by Kemna and Vorst.

Trades are in futures, options and TAPOs (traded average-price options, a form of Asian options).

Another advantage of Asian options involves the relative cost of Asian options compared to European or American options.

As well as an à la carte menu of snacks, pasta, pizzas and steak, there are daily buffets in summer, which include a variety of fish and several Asian options.

Because of the averaging feature, Asian options reduce the volatility inherent in the option; therefore, Asian options are typically cheaper than European or American options.

This is different from the case of the usual European option and American option, where the payoff of the option contract depends on the price of the underlying instrument at exercise; Asian options are thus one of the basic forms of exotic options.

For options with several sources of uncertainty (e.g., real options) and for options with complicated features (e.g., Asian options), binomial methods are less practical due to several difficulties, and Monte Carlo option models are commonly used instead.

Rubinstein popularized the term "exotic option" in 1990/92 working paper "Exotic Options" (with Eric Reiner), with the term based either on exotic wagers in Horse racing, or due to the use of international terms such as "Asian option", suggesting the "exotic Orient".