An option whose payoff depends on the difference between the final asset price and the average strike price. More specifically, the strike of an average strike option is not determined at the contract date. Rather it is calculated as an average of the spot rate as observed on a specific series of dates (or fixings) throughout the option’s life. If on the expiration date the average of spot rates is higher than the strike, the option is in the money and it is cash-settled, i.e., without having to physically deliver or taking delivery of the underlying asset.
August 10, 2024
