Consider the derivative which pays. What is the time-0 price for this derivative, and show it is less than the price of a European call. The pay-off is different - so what can we compare. So we can say that given the same moneyness the Asian option looks like a standard European option but with a third of its implied vol. Thus the Asian is cheaper.
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Join them; it only takes a minute: Here's how it works: Anybody can ask a question Anybody can answer The best answers are voted up and rise to the top. How to prove price of Asian option under geometric averaging is cheaper than a European call?
This was an exam question at Cambridge University. I don't see how this is less than the European call. RegDwight 1 1 4.
black scholes - How to prove price of Asian option under geometric averaging is cheaper than a European call? - Quantitative Finance Stack Exchange
Lost1 2 Hi, the pay-off that you describe here is that of an Asian option with geometric averaging. Maybe I find time to formulate an answer later. Richard nudge if you cba, a reference would also do. Thus the price of it should be lower than that of the European option.
Asian option - Wikipedia
Richard 7, 2 20 The 2nd ref does not open on my iPad. Will try again on a computer later. Google the title and you will get a download link.
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