An rainbow option (also known as an either-or option or an alternative option) whose payoff is based on the performance of two different underlyings. This type of options is widely used in the stock markets, and it allows investors to earn the return associated with the better performing of two stocks or indexes. Though it usually involves assets from a specific asset class such as all-stock, it can also involve assets from different classes such as stocks and bonds.
This option is also known as an option on the maximum.
