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MARKET INSIGHTS - A Case for Path-dependent Options in an Uncertain Environment

Path-Dependent Options: Navigating Market Uncertainties and Volatility Amid Geopolitical Unrest, Recession Fears, and Deglobalization with Specialized Solutions and Strategic Insights

Geopolitical unrest, an impending recession and deglobalization create volatility and demand for specialized solutions that path-dependent options can offer.

The current market environment contains multiple uncertainties, which create volatility and challenges for

investors across all asset classes. This report introduces the characteristics and functionality of path-dependentoptions. This class of options offers crucial opportunities for investors and enables the hedging of portfolios against atypical risks.

We present five popular path-dependent options and explain their behavior and payoffs in diverse scenarios. Moreover, sensibility measures for options are introduced and described to gain an enhanced intuition for thetrading of options and expanded knowledge about essential factors influencing options prices. We conduct an analysis to determine how the in options implied volatility behaves and how the implied volatility differs from the volatility observed in the equity market. Moreover, we present fundamental option pricing models for the assessment of an option’s fair prices.

The final section asserts the current implied volatility level and discusses whether it is a good time to purchase path-dependent options. Consequently, we provide an overview of decisive events that may impact the market significantly and suggest two path-dependent option strategies to profit from these events.

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