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  • August 8, 2021
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Double Average Option

A cash-settled option (a path-dependent option), principally used in forex markets, which combines the features of an average price option and an average strike option. The payoff of this option is typically calculated on expiration date by weighing the average underlying rate against the average strike price. The first average is normally figured out by summing up the underlying spot rate on a number of fixing dates over the option’s life and dividing by the number of fixings. Likewise, the second average is usually calculated in the same manner, but using a series of strike prices on different fixing dates. The fixing dates for the average rate/ price and average strike need not necessarily be identical.

If on expiration, the average underlying rate is higher than that of the strike price, the option is worth exercising (it is in the money).


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