Investopedia

Continue to Site »

Himalayan Option

Filed Under » ,
Dictionary Says

Definition of 'Himalayan Option'

An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of underlying securities, as opposed to the typical listed (vanilla) option, which has one underlying security.

Investopedia Says

Investopedia explains 'Himalayan Option'

The payout for a Himalyan option is based on the average performance of the underlying assets over the life of the option. Periodic measurement dates are established and on each date, a payout is made based on the best-performing security in the basket. This security is then removed from the basket. This process continues until a single security is left. The option's total payout is the sum of all the periodic payments.

Himalayan options can be extremely difficult to properly value because the payout is linked to a basket of securities. The content and volatility of the basket will change over time as securities are periodically eliminated. This is why Himalayan options are only held by large institutional investors, typically as a long-term hedge.

Asian options also have payouts based on average performance over the life of an option, but just one underlying security is used.

Articles Of Interest

  1.

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.

  2. Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.

  3. Exotic Options: A Getaway From Ordinary Trading

    These unusual investment vehicles can reignite your interest in trading.

  4. Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.

  5. Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.

  6. Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.

  7. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  8. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  9. Build A Baby Berkshire

    Get a piece of Warren Buffett's profit by using Form 13F to coattail his picks.

  10. Cash: A Call Option With No Expiration Date

    Cash is generally regarded as a drag on investment returns, but sometimes it may be preferable to hold a substantial cash amount instead of investing it in other assets. This is because having ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  2. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  3. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  4. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  5. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  6. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Trading Center