Valuation (Cont)
▪ By assuming that the average asset price is lognormal, an analyst can use
Black's model.
▪ The present value of an Asian call option is given by
푃푉퐶 = 푀 1 푁 푑 1 −퐾푁(푑 2 ) 퐷푑 1 , 2 =푙푛 푀 1 Τ퐾 ±휎^2 푇Τ 2
휎 푇휎^2 =1
푇ln(푀 2
푀 12)where
D the discount factor
N the cumulative standard normal distribution function
T the maturity date