ABSTRACT
Options trading became popular since, 1973, after the Chicago Board Options Exchange (CBOE) standardized and integrated options transactions. In the following 20 years or so, the options market expanded significantly, and many different exotic options were developed. The analytical model is popularly known as the Black-Scholes model (BS model), which opened the area of research on option pricing. Some other models to price standard vanilla European options. Several approaches used in pricing European options can be used in pricing American options, some of which include the Binomial Tree, Trinomial Tree, and Monte Carlo. This chapter discusses several exotic options and the corresponding tools for pricing them and some methods to price standard Asian options under a variety of methods. The two different arithmetic rate approximations available for pricing Asian options includes the Turnbull and Wakeman approximation and the Levy approximation. Various methods using Monte Carlo Simulation (MCS) have been developed to price arithmetic Asian options.
