A path-dependent option in which the payoff is based on an average of underlying asset prices, interest rates, indices, or the like during the life of the option. In this sense, the Asiatic option differs fundamentally from the European option and American option, where the payoff of the option contract is dependant on the price of the underlying instrument at maturity. An Asiatic option pays, at expiration, the difference between the strike and the average of the underlying prices observed during some specific dates. The dates are usually specified in the option contract. A variety of Asian options can be defined. Specifically, it is important to decide whether or not to include the first and the last option price. In terms of callability and puttability, Asiatic options come in two main types: Asiatic call options and Asiatic put options. Furthermore, Asiatic options can be categorized into three types: average strike options, average price options, and double average options. Asiatic options can also be classified as discrete Asiatic options or continuous Asiatic options according to how the average is computed. In pricing this type of options, the so-called Variance Gamma Model is implemented using the Bondesson series.

Asiatic options are useful in hedging periodic cash flows as they can mitigate spot manipulations or extreme movements of the underlying prices or rates at settlement. This is particularly beneficial for investors having positions in thinly-traded assets where price manipulations on or near the option’s expiration date have a substantial effect on the payoff. The averaging feature of Asiatic options can help avoid the high volatility of the price change and can also reduce extreme sensitivity of the payoff to the underlying price.

The Asiatic option is also known as Asian option or average option.