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Outperformance option
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Also known as a Margrabe option. A two-factor Option giving the purchaser the right to receive the outperformance of one asset over another asset. For example, a purchaser with a view that the Hang Seng Index (HSI) Will outperform the Dow Jones Euro Stoxx 50 (Euro Stoxx) index should buy the outperformance Option, which pays notional multiplied by the outperformance of the HSI index over the Euro Stoxx index. In this case, the payout is zero if HSI underperforms Euro Stoxx. The value of an outperformance Option Will largely be dictated by the historical Correlation between the underlyings.
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Privatebanking.com
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