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Medium · Market Microstructure · Quant Trader interview question · options, pricing, asian-option, european-option, volatility
Consider a European call option and an Asian call option, both written on the same underlying asset, with the same strike price and time to expiration. The Asian call option's payoff is based on the arithmetic average of the underlying asset's price over the life of the option. The European call option's payoff is based on the underlying asset's price at expiration. Assume no dividends are paid on the underlying asset. Which option is generally more expensive, and why?