Options are derivative financial instruments that give the holder of the option the right to sell (put options) or purchase (call options) an underlying asset at a preagreed price at a pre-agreed time (European-type options) or within a pre-agreed time interval (American-type options). Chooser options are exotic options, which grant the holder of the option the right to decide whether the option will be put or call, at a pre-agreed decision time between expiration and the purchase of the option. They are usually European-type options. We demonstrate that the premium of the chooser option before the decision time is higher than the premium of regular European put and call options, as the right to choose reduces the risk assumed by the investor when purchasing the option. We calculate the corresponding Greek parameters that measure the sensitivity of option’s value to changes in market variables.
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