File Name: Exotic Options – Simple Chooser
Location: Modeling Toolkit | Exotic Options | Simple Chooser
Brief Description: Computes the value of an option where the holder has the ability to decide if it is a call or a put at some future time period, where this option is similar to purchasing a call and a put together but costs less as a single chooser option
Requirements: Modeling Toolkit
Modeling Toolkit Functions Used: MTChooserBasicOption, MTGeneralizedBlackScholesCall, MTGeneralizedBlackScholesPut
A Simple Chooser Option allows the holder the ability to choose if the option is a call or a put within the Chooser Time (Figure 70.1). Regardless of the choice, the option has the same contractual strike price and maturity. Typically, a chooser option is cheaper than purchasing both a call and a put together and provides the same level of a hedge at a lower cost, but the strike prices for both options are identical. The Complex Chooser Option allows for different strike prices and maturities.
Figure 70.1: Simple chooser option