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#OptionExpiry
Quick note on Nifty/BankNifty options
Asian/Averaging options
Given option prices are settled based on average of last half hour prices (correct me if interval is wrong) perhaps in 5min intervals (trust me I couldn't find an NSE doc on this piece🤦‍♂️) our options
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Quick note on Nifty/BankNifty options
Asian/Averaging options
Given option prices are settled based on average of last half hour prices (correct me if interval is wrong) perhaps in 5min intervals (trust me I couldn't find an NSE doc on this piece🤦‍♂️) our options
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are actually Asian options.
So,
Asian call payoff : max(avg(S(ti) - strike,0) where S(ti) last 30mins, 5 min intervals prices (say)
and not european i.e. max(S(T) - strike,0)
The impact of averaging feature will be much less when we are away from expiry but gain significance
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So,
Asian call payoff : max(avg(S(ti) - strike,0) where S(ti) last 30mins, 5 min intervals prices (say)
and not european i.e. max(S(T) - strike,0)
The impact of averaging feature will be much less when we are away from expiry but gain significance
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As we are closer and specially in the second half of the expiry.
Now I won't bore you with the math of pricing them (which isn't trivial and done by matching 1st, 2nd moments of an assumed log-normal distribution of the averaged price and finding parameters i.e. mean/variance
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Now I won't bore you with the math of pricing them (which isn't trivial and done by matching 1st, 2nd moments of an assumed log-normal distribution of the averaged price and finding parameters i.e. mean/variance
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