Asian Options in a Market with High Volatility: Perspective and Evidence from Zoom and Peloton

Abstract

Contemporarily, uncertainties strongly affect the stock market, especially for the options market that fluctuates dramatically. On this basis, Asian options have become a favorable option for investors due to their low-risk characteristic. In this paper, two recently highly volatile assets, Zoom (ZM) and Peloton (PTON), were selected as investigation targets underlying Asian options. Specifically, both the Black-Scholes method and Monte-Carlo method were applied to price the Asian options for ZM and PTON. Based on calculations with the Black-Scholes formula and simulation with the Monte-Carlo method, we demonstrated that the prices of Asian options are approximately half of the corresponding Vanilla options. Besides, the expected returns are also nearly half of the corresponding Vanilla options. Moreover, according to the comparison between the calculations and simulation, the Black-Scholes formula eventually goes inaccurate while the strike price goes large or less than the original price. However, if the Monte-Carlo method is applied with enough times of simulations, the price of the Asian option will be reflected accurately. Overall, the Asian option is indeed a better choice for prudent investors in a highly volatile market.