External Extendible Options with Modifiable Underlying Assets

This article examines a new type of exotic options, namely the external extendible options. Such options have two distinct characteristics from the traditional ones: it is possible to extend the maturity and to change the underlying asset as well. We firstly derive a generalized closed-form pricing formula for such European-style options. We also demonstrate how this kind of option can be utilized as an effective hedging instrument in various fields such as capital-guaranteed or capital-protected funds, executive stock options, corporate warrants and firm production management