File Name: Exotic Options – Writer Extendible
Location: Modeling Toolkit | Exotic Options | Writer Extendible
Brief Description: Computes the value of various options that can be extended beyond the original maturity date if the option is out of the money, providing an insurance policy for the option holder, and thereby typically costing more than conventional options
Requirements: Modeling Toolkit
Modeling Toolkit Functions Used: MTWriterExtendibleCallOption, MTWriterExtendiblePutOption
Writer Extendible Options can be seen as insurance policies in case the option becomes worthless at maturity (Figure 79.1). Specifically, the call or put option can be extended automatically beyond the initial maturity date to an extended date with a new extended strike price assuming that, at maturity, the option is out of the money and worthless. This extendibility provides a safety net of time for the holder of the option.
Figure 79.1: Writer Extendible options