 
Summary: A Note on Pricing Asian Derivatives with
Continuous Geometric Averaging
John E. Angus
Claremont Graduate University
April 1, 1999
Abstract
A general expression is derived for the price of a Europeanstyle Asian con
tingent claim whose terminal value depends on both the underlying asset price
and the continuous geometric average of the price of the underlying asset over
the life of the claim. SpeciÞc formulas are derived for Asian call, put, and binary
options, as well as for the average strike binary options.
Key words: mathematical Þnance, options, average, contingent claims.
1. Introduction
Assume that trading is done in a perfect continuous security market with no transac
tion costs. Consider a security (e.g. a stock) whose share price is governed by the Ito
stochastic differential equation
dS = (µ  D)Sdt + SdX (1.1)
where µ and are positive constants, {X(t), t 0} is a standard Brownian motion,
and D represents a constant rate of continuous dividend payment. Assume all risk
free investments earn the same Þxed constant rate of continuously compounded return
