File Name: Exotic Options – Exotic Chooser Option
Location: Modeling Toolkit | Real Options Models
Brief Description: Values a hybrid or chooser option
Requirements: Modeling Toolkit, Real Options SLS
A Chooser option is a single option that allows the holder to decide if the option becomes a call or a put at some future time, essentially creating two options in one where the cost of the single option is lower than purchasing two options.
Many types of user-defined and exotic options can be solved using the SLS software. For instance, Figure 185.1 shows a simple Exotic Chooser Option. In this simple analysis, the option holder has two options, a call and a put. Instead of having to purchase or obtain two separate options, one single option is obtained, which allows the option holder to choose whether the option will be a call or a put, thereby reducing the total cost of obtaining two separate options. For instance, with the same input parameters in Figure 185.1, the American Chooser Option is worth $6.7168, as compared to $4.87 for the call and $2.02 for the put ($6.89 total cost for two separate options).
Figure 185.1: American and European exotic chooser option using SLS
