Himalayan Option

A Himalayan option is an exotic equity option that is based on a basket of underlying securities, not just one security as with normal options.

The payout for a Himalayan option is based on the average performance of the underlying assets over the life of the option. Periodic measurement dates are established, and on each date, a payout is made based on the best-performing security in the basket. This security is then removed from the basket. This process continues until a single security is left. The option's total payout is the sum of all the periodic payments.

Himalayan options can be extremely difficult to properly value because the payout is linked to a basket of securities. The content and volatility of the basket will change over time as securities are periodically eliminated, making valuation a challenge. Himalayan options are typically held only by large institutional investors, typically as a long-term hedge.

Himalayan options are one of a group of options introduced by Societe Generale in 1998 known as Mountain Range Options. Others in the group include Everest options, Altiplano options and Annapurna options.