Exotic Options – Time Switch Options

File Name: Exotic Options – Time Switch Options

Location: Modeling Toolkit | Exotic Options | Time Switch

Brief Description: Computes the value of an option where its value is dependent on how many times a barrier is breached during the life of the option

Requirements: Modeling Toolkit

Modeling Toolkit Functions Used: MTTimeSwitchOptionCall, MTTimeSwitchOptionPut

In a Time Switch Option, the holder receives the Accumulated Amount x Time Steps each time the asset price exceeds the strike price for a call option (or falls below the strike price for a put option), as seen in Figure 73.1. The time steps are how often the asset price is checked if the strike threshold has been breached (typically, for a one-year option with 252 trading days, set DT as 1/252). Sometimes, the option has already accumulated past amounts, or as agreed to in the option as a minimum guaranteed payment, as measured by the number of time units fulfilled (which is typically set as 0).

Figure 73.1: Time switch options

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