First crafted by Société Générale in 1998, mountain range options are a line of option products, which constitutes path-dependent options whose underlying is a basket of assets/ securities, rather than one asset/ security as is the case in ordinary types of options. This option family blends the features of basket-style options (a.k.a rainbow options) and range options (a specified period of time wherein the option is active).
The first set of options has multiple underlying assets, while in the second, options have multiyear time ranges. Pricing the mountain range options requires the use of multiple inputs, depending on the type of option in question (Altiplano, Annapurna, Everest, Atlas, Himalaya). Those types are traded over-the-counter, mainly among banks and institutional investors. The price correlations between the basket assets/ securities, on one hand, and the payout levels, on the other, are important variables in valuating mountain range options.
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