Delta Quants - Mountain Range Options

Votes: 6422

Originally marketed by Société Générale in 1998.
Traded over-the-counter (OTC), typically by private banks and institutional investors such as hedge funds.
These options have combined characteristics of Range and Basket options.
The options are active for a specified time (characteristic of Range options) and the payoff is dependant on the performances of multiple underlying assets (characteristic of Basket options).
The five most commonly traded Mountain range options are Altiplano, Annapurna, Atlas, Everest and Himalayan. (names of mountain ranges! )

The buyer receives a large coupon at maturity if the low barrier is not hit for any of the underlying basket securities.
If the barrier is hit, the buyer receives the payoff of a plain vanilla or sometimes an Asian call on the basket.
The buyer in these exotic options will aim to let the option ride out by choosing underlying stocks that will consistently rise.

Gives the option holder a payoff if none of the stocks from the underlying basket of securities fall below a predetermined fraction of the initial value till maturity.
The buyer has a bullish view on the underlying stocks.
The more correlated the stocks in the underlying basket are, the higher the product price will be keeping all other trade parameters constant.

A option here the some of the best and worst performing securities are removed from the basket of underliers on an observation date on or before the maturity.
The payoff similar to a call option on the remaining securities basket at maturity.
This product is somewhat similar in characteristics to an Asian call options. With outliers being removed from the basket – the payoff becomes even lesser volatile. The product should be cheaper to an Asian option with similar trade parameters.

A long term option (10-15 years) with an underlying basket containing large number of stocks (10-25 stocks)
Buyer receives a payoff on the worst-performing member of a large basket of stocks at maturity.

Like an Asian option, the Himalaya is a call on the average performance of the best performing stocks within the basket.
On each observation date, the return level of the best performing stock is locked in. The stock is then removed from the basket.
On maturity when only one stock remains, the return level of the remaining security is locked in for payoff calculation.
The option's total payout is the sum of all the interim locked in return levels.