Methods for Pricing Asian Options from Implied Volatility Quotes

Summary

The document asks how to interpret an over-the-counter Asian option quote expressed as implied volatility, including whether that volatility corresponds to a same-price European vanilla option. Its answer does not define a unique vanilla-equivalent volatility or explain the convention used to translate the quote into a model input. Instead, it names three practitioner approaches for valuing Asian options: Monte Carlo simulation, a moment-matching approximation associated with Levy, and the Curran method when greater precision is sought.

These methods concern valuation of the path-dependent payoff, whose average-price feature makes it different from a standard European option. The brief response offers no derivations, comparison of accuracy, market conventions, or worked example, so it serves as a pointer to numerical and approximate pricing approaches rather than a complete treatment of implied-volatility quoting. The appropriate interpretation of a quoted volatility therefore remains dependent on the specific pricing framework and conventions, which the source does not spell out.

Key ideas

• Asian option implied volatility is raised as a question about how an OTC quote maps to a pricing model.
• The response lists Monte Carlo simulation as one method used to value Asian options.
• Moment matching through the Levy approximation is another named valuation approach.
• The Curran method is cited as an option when greater precision is desired.
• The response does not specify a universal equivalent European volatility or explain market quoting conventions.

Tags

# What is the meaning of an implied volatility of an Asian option?


# What is the meaning of an implied volatility of an Asian option?












Suppose that an Asian option is quoted OTC in terms of its implied volatility. What is the meaning of an implied volatility in this case? Is it an implied volatility of a vanilla European option with the same price, strike and maturity?

## Answer by danp (score 2)

https://quant.stackexchange.com/a/70711

Practitioners use Monte Carlo methods, the moment matching method (Levy approximation) and when they want to be super-precise, the Curran method.

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