Mountain Range Options

DEFINITION of 'Mountain Range Options'

A family of exotic options based on multiple underlying securities. Mountain range options were first created by French securities firm Société Générale in the late 1990s. These options blend some of the key characteristics of basket-style or rainbow options (which have more than one underlying security or asset) and range options, which have multiyear time ranges.

BREAKING DOWN 'Mountain Range Options'

The price of a mountain range option is based on multiple variables, the most important of which is the correlations between the individual securities in the basket. Some options have discrete payout levels (e.g., double the investment, triple the investment) if certain performance metrics are hit by the underlying securities while the option is in effect.

Types of mountain range options include Altiplano options, Annapurna options, Everest options, Atlas options and Himalayan options. They are traded over-the-counter (OTC), typically by private banks and institutional investors such as hedge funds.

The difficulties in determining the fair market value for these exotic options makes standard formulas (like the Black-Scholes method for vanilla options) nearly impossible to apply. Certain types of mountain range options have recalculation or sampling dates, at which the best- or worst-performing stocks from the basket are removed. Thus, holders of these options must constantly re-evaluate the parameters affecting their current value. Effects such as volatility skew, which is found in most options, can be even more pronounced within mountain range options.

RELATED TERMS
  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Altiplano Option

    A type of mountain range option that offers a specific coupon ...
  3. Basket Option

    A type of financial derivative where the underlying asset is ...
  4. Underlying

    1. In derivatives, the security that must be delivered when a ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of ...
  6. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
Related Articles
  1. Options & Futures

    Careers In The Derivatives Market

    The growing interest in and complexity of these securities means opportunities for job seekers.
  2. Options & Futures

    Are Derivatives A Disaster Waiting To Happen?

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

    Understanding Option Pricing

    Take advantage of stock movements by getting to know these derivatives.
  4. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  5. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  6. Economics

    The Truth about Productivity

    Why has labor market productivity slowed sharply around the world in recent years? One of the greatest economic mysteries out there.
  7. Fundamental Analysis

    HF Performance Report: Did Hedge Funds Earn Their Fee in 2015?

    Find out whether hedge funds, which have come under tremendous pressure to improve their performance, managed to earn their fee in 2015.
  8. Investing Basics

    Bill Ackman's 2 Best Investments (GGP, CP)

    Learn about the two best investments Ackman ever made. Ackman has demonstrated a consistent track record of success in all types of market environments.
  9. Investing

    George Soros: 3 Best Investments Ever

    Learn about some of the most successful trades famed investor George Soros has made during his career, including a billion dollar profit against the pound.
  10. Saving and Spending

    Where Does Bill Ackman Keep His Money?

    Learn about where prominent hedge fund manager Bill Ackman keeps his money. See how his short position in Herbalife has not been successful so far.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  3. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  4. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  5. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  6. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center