Previous Topic

Next Topic

Introduction to Exotic Options

The Exotic Options component is designed to deal with a range "Exotic Option" derivative instruments. The supported functions can be usefully split into eleven categories:

Asian Option Functions: An Asian option has its payoff linked to the average price of an asset over a period of time. Due to this Asian options have a lower volatility, rendering them cheaper relative to their European style options.

Barrier Option Functions: Barrier options are path-dependent options, that are either initiated (knocked in) or eliminated (knocked out) upon reaching a certain barrier level.

Binary Option Functions: Binary options, sometimes referred to as digital or bet options, are options that pay out either a fixed amount(if they expier in the money), or nothing (if they expire out of the money).

Chooser Option Functions: Chooser Options are options that allow the holder to choose whether the option is a call or a put atsome future date. There are two forms of chooser option, Simple and Complex.

Exchange Option Functions: Exchange options allow the holder to exchange one asset for another.

Extendible Option Functions: Extendible options are options that can be extended by the holder or writer of the option.

Foreign Equity Option Functions: Foreign Equity options are options in which the underlying asset is a foreign equity.

Lookback Option Functions: Lookback options are a type of path-dependent option. A Lookback Call (Put) allows the holder to buy (sell) the underlying asset at the lowest (highest) price reached during the term of the option.

MinMax Option Functions: MinMax options are option on the maximum or minimum of an asset.

Spread Option Functions: Spread options have a payoff determined by the difference between the prices of two assets and a fixed strike price.

Various Option Functions: Options that do not fit in one of the above groups.

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.