When is an Asian option less useful than a vanilla option?
A) For reducing the incentives for price manipulation of the underlying close to maturity.
B) For making the option less sensitive to jump risk close to maturity.
C) For hedging exposure to the average price of a security.
D) For taking directional bets.

Question

Quizplus · Accepted Answer

Asian options are designed to mitigate the effects of short-term price fluctuations by averaging the underlying asset's price during their life. This feature makes them less useful for taking directional bets, as they are better suited for hedging exposure to the average price of a security over a longer period. Therefore, vanilla options are more appropriate for taking directional bets.

When Is an Asian Option Less Useful Than a Vanilla