Altiplano Option
Altiplano Option: An Overview
An altiplano option is an especially exotic type of derivatives investment that depends on different underlying securities as opposed to on a single underlying asset. It is one of a family of such options, called mountain range options, that was imagined during the 1990s by the Swiss investment firm Soci\u00e9t\u00e9 G\u00e9n\u00e9rale.
Likewise with any options investment, the buyer of an altiplano option gets the ability to buy or sell the underlying asset at a foreordained time and price. In any case, the investor receives a pre-set coupon payout on the off chance that the strike price isn't reached. In effect, the investor is getting insurance with some guaranteed payout if this bet on the price heading of the assets is off-base.
Grasping the Altiplano Option
As a general rule, altiplano option is one type of basket option. That is, it is an option to buy or sell a number of stocks or different assets, not a single asset. Thusly, the pricing is resolved not just by the implied volatility of every asset yet additionally by the relationships between's them.
On the off chance that none of the securities in the Altiplano basket beats a predetermined benchmark rate of return during the life of the option, the investor will receive just the predefined coupon rate for the option. Yet, on the off chance that any of the underlying passes the benchmark, the investment converts to a vanilla call option on every one of the underlying securities or assets.
Mountain Range Options
Altiplano options have a place with a group of purported mountain range options made by French bank Societe Generale as an imaginative method for covering several situations with a single derivative. Different types of options were named Atlas, Himalayan, Annapurna, and Everest. The altiplano is a level in the Andes Mountains.
These structured options are intended to give the advantage of lower total volatility compared to that of individual securities. With lower volatility comes decreased hedging costs.
Stocks are typically the underlying securities for Altiplano options, and just certain stocks have appeared in the most common Altiplano issues.
The market for mountain range options is for the most part involved institutional investors, for example, investment banks and hedge funds. Their pricing equations include complex Monte Carlo simulations or other simulation methods that require designing a set of connections between's the strike price of each underlying security.
Since Altiplano options incorporate a guaranteed payout on the off chance that certain negative events happen, they are appealing securities for investors who look for capital protection.
Grasping Options in General
An option is a type of derivatives investment. That is, the investor isn't buying or selling a specific asset however is buying an instrument that addresses the value of that asset.
The option gives the investor the right to buy or sell that asset (or assets) at a specific price on a specific date. The investor who needs to buy the asset at that price purchases a call option. The investor who needs to sell the asset at that price purchases a put option.
Assuming the investor ends up being right in speculating the price course of that asset, the option is practiced and the investor harvests the profit. Assuming that the investor is off-base, the option is permitted to lapse and the investor loses the premium paid for it.
Features
- Institutional investors and hedge funds are the primary market for altiplano options.
- The altiplano option offers the options investor a guaranteed payout in the event that the investment fails to arrive at the expected strike price.
- It is one type of purported "mountain range options" that are made with a number of underlying stocks or different securities instead of just one.
