Average Option Pricing in Volatile Market

8 Pages Posted: 18 Sep 2011

See all articles by Angelo Joseph

Angelo Joseph

University of South Africa - School of Business Leadership

Jan Walters Kruger

University of South Africa (UNISA) - Graduate School of Business Leadership (SBL)

Date Written: September 16, 2011

Abstract

Financial markets exhibit high levels of volatility. Volatile markets are usually associated with high risks and uncertain investment returns. Financial institutions therefore, usually opt to hedge their investment portfolios against the high volatility using a suitable hedging structure. One particular volatility hedge, involves taking a position in an average option. However, for the hedge to be effective in practice, the price of this option must be determined. In this paper we present a method of pricing an average option that is quick and reliable especially in volatile markets.

Keywords: average, option, pricing, volatility, markets

JEL Classification: G10, G12, G13

Suggested Citation

Joseph, Angelo and Kruger, Jan Walters, Average Option Pricing in Volatile Market (September 16, 2011). Available at SSRN: https://ssrn.com/abstract=1928753 or http://dx.doi.org/10.2139/ssrn.1928753

Angelo Joseph (Contact Author)

University of South Africa - School of Business Leadership ( email )

P.O. Box 392
UNISA
Pretoria, Gauteng 0003
South Africa

Jan Walters Kruger

University of South Africa (UNISA) - Graduate School of Business Leadership (SBL) ( email )

Smutsweg
Midrand, 1686
South Africa

HOME PAGE: http://za.linkedin.com/pub/prof-jan-kruger/10/368/677/

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