An exotic equity option which is based, unlike vanilla options (which have only one underlying asset), on a number of underlying securities (basket). That makes its payoff depend on the performance of its underlying assets during its time to maturity. In essence, a Himalaya option belongs to the class of multi-asset options with concentration on removing the best performing stock out of the basket at specified sampling dates, leaving only one asset in at maturity, on which the payoff of the option is based.
In this sense, this option is similar to an Asian option as both are based on averaged performance. However, in the case of Himalaya options, the payoff depends on the average performance of the best assets within a basket. Throughout the life of the option, there are preset dates where time and again the best performer within the basket is thrown out, and this process continues until all the assets, with the exception of only one, have been thrown out of the basket. The total return on the remaining stock is used as the final measure of return. That is, the option’s payoff is the sum of all the average returns of the last asset over the life of the option.
This option belongs to the broader class of mountain range options.
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