Option with additional condition

[MaryJane]

Hi guys, I can’t find any information about such type of exotic (?) options.

May be you can give me some advice.

Suppose, I have a contract with the following parameters:

• OTC European call option with maturity 31 December 2022
• Underlying is 10% of Company A shares (so I have the right to buy some shares)
• Spot price S and strike price K of Company A shares are known
• Option can be exercised only if:
  • Condition A: Company A IPO has not occurred prior to 31 December 2022, and
  • Condition B: another event B happens before the maturity date.
• Conditions A and B are not connected with the price of the underlying, nor with some type of a barrier.
• Probabilities of Conditions A and B are far from 100%. Suppose, the Probability(A) = 20%, Probability(B)=30%. So Conditions A and B can not be ignored and are significant for exercising of the option.

If there were no Conditions A and B, I would have a simple Vanilla European Option. I could use Black-Scholes formula for pricing such an option and have FairValue(Call).

But how can I work with two additional Conditions A and B? Is the fair value of the structure equal to FairValue(Call)*Propability(A)*Probability(B)?



Seriously, I have never seen such a contract before and I do not know what to do. >_<

How can I price fair value of such an instrument?

Are there some standards that mention multiplication of derivative fair value and the probability of exercise?

I would really appreciate ANY ideas about derivatives with additional conditions.

Thank you!!