An Introduction to Exotic Option Pricing

Chapter 10

Exotic Multi-Options

10.1 Introduction

Chapters 5 and 6 of this book dealt with dual expiry and two asset rainbow options respectively. It should be obvious that these option categories have multi-period and multi-asset extensions. That is, we might want to consider options with more than two expiry dates; or options with more than just two underlying assets. This chapter considers a class of derivatives which are simultaneously multi-period and multi-asset. In particular, in this chapter, we shall be mainly concerned with a single object, which we call an 𝕄-binary. This binary is the basic building block for all multi-period, multi-asset derivatives, which have a closed-form price in the Black–Scholes economy. The 𝕄-binary is itself ...