What is a Rainbow Option?
How Does a Rainbow Option Work?
Just as rainbows have many colors, options can have many option like this to make for the investor, the price of the first asset and the price of the second asset both have to move in the desired direction to make exchanging one asset for another worthwhile. Because the option has "more than one color," we Margrabe options rainbow options, though any option that derives its value from more than one asset is considered a rainbow option.. A Margrabe , for example, gives the buyer the right but not the to exchange one for another at a set price on or before the date. In order for an
Why Does a Rainbow Option Matter?
Rainbow options can be difficult to analyze because of their many moving parts, but the main idea is that all of the investment to pay off.in a rainbow option have to move in the "right" direction in order for the