Valuation (Cont)
▪ When K > 0, the option can be valued in the same way as a newly issued
Asian option provided that we change the strike price from K to K and
multiply the result by 푡 2 /(푡 1 +푡 2 )
푃푉퐶 =
푇 2
푇 1 +푇 2푀 1 푁 푑 1 −퐾∗푁(푑 2 ) 퐷푃푉푃 =푇 2
푇 1 +푇 2퐾∗푁 −푑 2 −푀 1 푁 −푑 1 퐷▪ When K* < 0 the option is certain to be exercised and can be valued as a
forward contract. The value is
푃푉퐶 =푇 2
푇 1 +푇 2푀 1 −퐾∗ 퐷푃푉푃 =푇 2
푇 1 +푇 2퐾∗−푀 1 퐷