Posted by
Andreas Spengler-2 on
URL: http://quantlib.414.s1.nabble.com/Specifics-of-Himalayan-Option-tp5293p5295.html
Hi Marcin,
thanks for your quick response; would the below also hold for the
QuantLib implementation?
Rgds,
Andreas
Am 17.12.2009 19:30, schrieb Marcin Pawlik:
> 2009/12/17 Andreas Spengler<
[hidden email]>:
>
>> regarding the description of the Himalayan Option,
>>
>> "The payoff of a Himalaya option is computed in the following way: Given a
>> basket of N assets, and N time periods, at the end of each period the
>> option who performed the best is added to the average and then discarded
>> from the basket. At the end of the N, periods the option pays the max
>> between the strike and the average of the best performers."
>>
>> I have some questions regarding that:
>>
>> - What exactly does "performed the best" mean? Relative to the starting
>> value?
>> Relative to the value at the end of the preceding period?
>
> I think that relative to the starting value is a more common solution.
>
>
>> - Is the relative performance or the absolute value at the fixing dates
>> added to the running average?
>
> Performance.
>
>
>> - In conjunction with the above, would I have to specify an absolute
>> strike or a relative strike (e.g. 104%)?
>
> Relative one.
>
> Take a look:
>
http://www.global-derivatives.com/index.php/pricing-models-topmenu-37/49?task=view>
http://www.classiccmp.org/transputer/finengineer/%5BRisk%20Magazine,%20Overhaus%5D%20Himalaya%20Options.pdf>
> Marcin
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