A multifactor option (or multiasset option) is an option whose payoff depends upon the performance of two or more underliers. There are three general categories:

basket options are options on a portfolio or "basket" of underlier values;

quantos are derivatives that have an underlier denominated in one currency, but settle in another currency without exposure to currency fluctuations.

rainbow options are multifactor options other than basket options or quantos.

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copyright © Glyn A. Holton, 2002

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