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Madonna Option

A variation on maximum and minimum options (best-of and worst-off options) which pays the Euclidian distance between the current price and the strike price of its underlying(s). The payoff of a Madonna call option can be given by:

Madonna Option

where:

i is the underlying asset no. i= 1, 2, 3, … , n

S is the market price of underlying (i) at expiration time (T)

K is the strike price of an underlying (i)

The payoff of a Madonna put option is:

Madonna Put Option

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