An option in which the exercise price is equal to the average of the underlying asset’s price during the life of the option. In this sense, the average rate option differs fundamentally from the European option and American option, where the payoff of the option contract is dependent on the price of the underlying instrument at maturity. In pricing this type of options, the Variance Gamma Model is implemented using the Bondesson series.
It is also known as an average option, average rate option or Asian option.
