Altiplano Option

AAA

DEFINITION of 'Altiplano Option'

A type of mountain range option that offers a specific coupon payout in addition to the features of a vanilla option. Altiplano options are a type of basket option, in that there is more than one underlying security. As such, the pricing is determined not only by the implied volatility of each security, but also by the correlations between them. If none of the securities in the Altiplano basket outperforms a specified benchmark rate of return during the life of the option, then the option payout is just the specified coupon. But if any one of the underlying passes the benchmark, then the option converts to a vanilla call option on each of the underlying securities or assets.

INVESTOPEDIA EXPLAINS 'Altiplano Option'

Typically, stocks are the underlying securities, and only certain stocks have appeared in the most prevalent altiplano issues. These options are created for, and traded by, institutional investors such as banks and hedge funds. Their pricing formulas involve complex Monte Carlo simulations or other simulation techniques that require setting up a set of correlations between the strike price of each underlying security. Because Altiplano options include a guaranteed payout if certain negative events occur, they may be more expensive than an aggregate of vanilla options on the same set of underlying stocks.

RELATED TERMS
  1. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  2. Underlying

    1. In derivatives, the security that must be delivered when a ...
  3. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  4. Mountain Range Options

    A family of exotic options based on multiple underlying securities. ...
  5. Atlas Options

    An equity-based exotic option from the family of mountain range ...
  6. Everest Option

    A type of exotic equity option belonging to a class known as ...
Related Articles
  1. Options & Futures

    Use Married Puts To Protect Your Portfolio

    Learn how put options can act as insurance for volatile stocks in your portfolio.
  2. Options & Futures

    Do Option Sellers Have a Trading Edge?

    Take a look at a study that discovered that three out of every four options expired worthless.
  3. Options & Futures

    The 4 Advantages of Options

    Flexible and cost efficient, options are more popular than ever. Find out why.
  4. Options & Futures

    The ABCs Of Option Volatility

    The mystery of options pricing can often be explained by a look at implied volatility (IV).
  5. Mutual Funds & ETFs

    What is the difference between a hedge fund and a private equity fund?

    Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth investors.
  6. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  7. Mutual Funds & ETFs

    Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting investors.
  8. Mutual Funds & ETFs

    What is the purpose of a hedge fund?

    Find out what a hedge fund is, how it is set up and why it is different than other forms of investment partnerships like mutual funds.
  9. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  10. Options & Futures

    How are Bollinger BandsĀ® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center