An Asian option is a financial instrument. It is an exotic option.
An Asian option is an option that relates to an underlying asset that is averaged in price over a specified period. By averaging the price movements in the underlying value, the results are much smaller. The expected volatility is much lower than with normal options and the price is therefore significantly lower.
The options can be used in the form of calls or puts. The Asian options are regularly traded on currencies and commodities in which there is less trade volume. For calculating the average there are two sizes in use, the arithmetic mean and thegeometric mean.
These types of options were introduced by the Japanese branch of Banker’s US Bank, which they used for options on oil. Because they are used for the first time in Japan, these derivatives are called Asian options.