Mountain Range Options

AAA

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.

INVESTOPEDIA EXPLAINS '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. Altiplano Option

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

    A type of financial derivative where the underlying asset is ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  5. Monte Carlo Simulation

    A problem solving technique used to approximate the probability ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. What is the 12b-1 fee meant to cover?

    A 12b-1 fee in a mutual fund is meant to cover the fees of companies and individuals through which investors of a fund buy ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>
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 Basics

    Understanding Total Return Swaps

    A total return swap is a contract in which a payer and receiver exchange the credit risk and market risk of an underlying asset.
  5. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  6. Economics

    What are Barriers to Entry?

    A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
  7. Investing Basics

    Explaining Absolute Return

    Absolute return refers to an asset’s total return over a set period of time. It’s usually applied to stocks, mutual funds or hedge funds.
  8. Investing Basics

    How To Create Capital Protected Investment Using Options?

    Does "Capital-Protection" guarantee in an investment product sound attractive? Wait! Here's how you can create a better one for yourself, at low-cost!
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 500 Trust

    Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund.
  10. Options & Futures

    How to Make Money by Trading Index Options

    Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!