Asian Option

An Asian option is a type of exotic option whose payoff is determined by the average price of the underlying asset over a specified period, rather than the price at a single point in time. Because averaging dampens the effect of short-term price spikes and manipulation, Asian options are inherently cheaper and less volatile in payoff than standard European or American options. They are particularly useful for companies managing commodity price exposure — for example, an Indian oil refiner wanting to hedge against the average crude oil price over a quarter rather than protecting against a single-day price movement. Asian options are traded OTC in India's institutional derivatives market and are a common feature in commodity price risk management contracts.