Could you please simply tell me how they work? I suppose early exercise refers to an Americanoption, what about Asian, does that refer to anaveraging of some sort? I don't have any clue on the 'window' part, so please help.Dominique

Yes, Asian means that the payoff is a function of an average of some sort over the whole life time of the option. Then there are also Asian tails where the ave. is just taken over the last part of the options's life, e.g. the last week or even just the last day. A moving window Asian with early exercise would be like the tail, with the difference that it can be exercised early, with the early payoff being depending on the current average (e.g. over the last week). And that's a big diff!

Lennart,thanks very much but I lost you towards the end. I follow you as far as tail is concerned and I understand you'd be able to exercise early as it's an American. I am used to look at Asian tails on Europeans so that may be the reason why I don't get it. "The early payoff depending on the current average" this part I do not understand. Are you saying the buyer of this option has the right to early exercise only if a certain average is reached? Please give me a practical example.Thanks!Dominique

DominiqueSay that the payoff function is Max(A-K,0) where K = 100, and the average is calculated over 1 week, but the option still has 1 month to live. So the holder calculates A and find that it is 115. Then he can exercise the option and get 15... Which he would not if the share price S is 125 and climbing (so he would expect A to rise as well). But what if S is 105 and falling?

Asian options with American excersise are known as Hawaii options. This term was invented by Professor Miltersen from Denmark (curently at UCLA) or some other Danish guy I think. there is at least a couple of working papers on how to value Hawaii options. But the window type I have never seen any publications on.

What does 'window' mean when it comes to options? I have never heard it before. Is there another term for that?Lennart, so I have the right to early exercise if the spot is at 115 in your example. If the spot is higher then I cannot exercise early and I guess if spot is at 105 I have not much interest in exercising as the gains are not good enough [just suppositions]but I could if I wanted to. Is it a situation where if spot =<115 it's an American option, if spot >115 it's just a European?Dominique

Sorry I meant it's just an Asian without early exercise rather than a European. When I refer to spot I really mean 'averaging' spot.Dominique

Professor Miltersen just told me it was Peter Løchte Jørgensen and Bjørn Nybo Jørgensen that wanted to go to a conference in Hawaii. For this reason they wrote a paper on Asian options with American excersise style and named it Hawaii options.I will see if I can get hold on that paper.

OK, I will try again with an example. Let's say that you have a moving window Asian with early exercise (i.e. Am. type = exercise whenever the holder wants). Payoff = Max(A-K,0), i.e. A-K if A>K otherwhise 0Strike = K = 100 in my exampleWindow = D days = 1 week = 5 trading daysAve. type = arithmetic average of the last price of each day in the windowNow let's say that day 1,2,3,... etc happens to give the last prices (quite un-realistically) 101,102,103,... etc Then we have the following table:t S A1 1012 1023 1034 1045 105 102.506 106 103.507 107 104.50etcwhere A at each date is the average of 5 days until that date. So if you exercise at day 6, where A is the average of S from the days 2,3,4,5,6, i.e. 103.50, you would get something since A>K, and that amount would be 103.50-100=3.50. However you would have earned more at day 7, where the A is calculated from days 3,4,5,6,7 (note that the start day has moved!) to be 104.50, so you would get 4.50. This is as clear as I can possibly be. Hope it helps. And the reason why you haven't heard of "window"-options before is simply that nothing such ever existed before, not even in the litterature as Collector says (and I trust him on that!).

Thanks Lennartvery clear. What about 'Moving'Window Asian with early exercise?Dominique

Dominique, That was the one I described. Sorry that I first wrote "moving window Asian with early strike". Just a mistake. Now it is changed (using the "edit" button).