I am trying to find out what is an 'option on a basket of equities Asian-in Asian-out'? I understand basket options and Asian options, but I am unfamiliar with the term Asian-in Asian-out. Anyone care to explain? Thanks!
I couldn't reply earlier as I was busy with my academics. ( I was still in college you know) The distinction is that an 'Asian in' has a floating strike and 'Asian out' has a fixed strike. For simplicity let's consider how a call option works for both in and out. S=Settlement price K=Strike We know that the payoff at maturity is (S-K,0) for calls. The former i.e Asian in has a fixed strike(decided at the beginning of the contract) and a floating settlement price(taken as an average of Asian setting date prices). The latter i.e Asian out has a floating strike(taken as an average of the Asian setting date prices) and fixed settlement price(i.e the price at maturity) This is analogous to the lookback option types