Answer: Most market traded options use a geometric average

### Correct answer: **C** Asian options are **path dependent**, so the payoff depends on an average of the underlying price over some period rather than only the terminal price. - **A is true**: averaging reduces volatility of the payoff, so Asian options are usually cheaper than vanilla options. - **B is true**: geometric averages are mathematically easier to handle than arithmetic averages, so they are easier to price. - **C is false**: in practice, most traded Asian options use an **arithmetic average**, not a geometric average. - **D is true**: like lookbacks, Asians depend on the path of the underlying. Therefore, the exception is **C**.

Author: Manit Arora