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Exotic option

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1422: 79:" in the 2010 Kentucky Derby that "paid a whopping $ 101,284.60" as an example of the controversial high-risk, high-payout exotic bets that were observed by track-watchers since the 1970s in his article about why we use the term exotic for certain types of financial instrument. Palmer compared these horse racing bets to the controversial emerging exotic financial instruments that concerned then-chairman of the 122:
or European, would be considered a non-exotic or vanilla option. There are two general types of exotic options: path-independent and path-dependent. An option is path-independent if its value depends only on the final price of the underlying instrument. Path-dependent options depend not only on the
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in exotic option are determined by the underlying price and ability of the stock to be active or inactive during the trade period, for instance up-and-out option has a high chance of being inactive should the underlying price go beyond the marked barrier. Down-and-in-option is very likely to be
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of the stock go below the marked barrier. Up-and-in option is very likely to be active should the underlying price go beyond the marked barrier. One-touch double barrier binary options are path-dependent options in which the existence and payment of the options depend on the movement of the
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In 1987, Bankers Trust's Mark Standish and David Spaughton were in Tokyo on business when "they developed the first commercially used pricing formula for options linked to the average price of crude oil." They called this exotic option the Asian option, because they were in Asia.
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The article quotes then-chairman of the Federal Reserve Paul Volcker in 1980 when he argued, "This is hardly the time to search out for new exotic lending areas or to finance speculative or purely financial activities that have little to do with the performance of the American
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they may have several triggers relating to determination of payoff. An exotic option may also include a non-standard underlying instrument, developed for a particular client or for a particular market. Exotic options are more complex than options that trade on an
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The payoff at maturity depends not just on the value of the underlying instrument at maturity, but also on its value at several times during the contract's life (for example an Asian option depending on some average, a
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final price of the underlying instrument, but also on all the prices leading to the final price. An exotic option could have one or more of the following features:
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in 1980. He argued that just as the exotic wagers survived the media controversy so will the exotic options.
361: 1340: 878: 732: 526: 60:'s 1990 working paper (published 1992, with Eric Reiner) "Exotic Options", with the term based either on 41: 1452: 1196: 1137: 959: 498:
Interest-rate Option Models: Understanding, Analysing and Using Models for Exotic Interest-rate Options
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The Options Applications Handbook: Hedging and Speculating Techniques for Professional Investors
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Even products traded actively in the market can have some exotic characteristics, such as
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which ceases to exist if a certain level is reached or not reached by the underlying, a
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Derivative which has features making it more complex than commonly traded products
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William Falloon; David Turner, eds. (1999). "The evolution of a market".
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The Complete Guide to Capital Markets for Quantitative Professionals
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It could involve foreign exchange rates in various ways, such as a
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which has features making it more complex than commonly traded
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Journalist Brian Palmer used the "successful $ 1 bet on the
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Kyprianou, Andreas E.; Wim Schoutens; Paul Wilmott (2005).
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of the option at expiry, such as a cash or share option.
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and rely on complex models to attempt to price them.
68:, or due to the use of international terms such as " 408: 154:The manner of settlement may vary depending on the 147:It could depend on more than one index, such as in 492: 291: 289: 161:There could be callability and putability rights. 1439: 431: 322: 472:Exotic Option Pricing and Advanced Levy Models 286: 176:, whose valuation can depend on the price and 534: 411:The Complete Guide to Option Pricing Formulas 295: 213:underlying price through their option life. 56:The term "exotic option" was popularized by 541: 527: 335: 329:Research Program in Finance Working Papers 450: 1366:Power reverse dual-currency note (PRDC) 1306:Constant proportion portfolio insurance 323:Rubinstein, Mark; Reiner, Eric (1995). 242:Constant proportion portfolio insurance 132:depending on the maximum or minimum, a 1440: 548: 522: 1301:Collateralized debt obligation (CDO) 98:Exotic options are often created by 384:"Double Barrier And Exotic Options" 360:. BOB. May 18, 2013. Archived from 358:"Exotic And Double Digital Options" 72:", suggesting the "exotic Orient". 13: 402: 14: 1464: 432:Banks, Erik; Paul Siegel (2007). 140:, peroni options, range options, 1420: 1128:Year-on-year inflation-indexed 376: 350: 316: 188:, the level and volatility of 93: 1: 1138:Zero-coupon inflation-indexed 296:Brian Palmer (14 July 2010). 279: 208:active should the underlying 409:Haug, Espen Gaarder (2007). 386:. BinaryToday. March 9, 2015 51: 7: 1341:Foreign exchange derivative 733:Callable bull/bear contract 216: 199: 105: 44:, and are generally traded 10: 1469: 344:Managing Energy Price Risk 1415: 1374: 1293: 1250: 1242:Stock market index future 1146: 1023: 931: 794: 703: 640: 574: 565: 556: 455:. New York: McGraw-Hill. 35:. Like the more general 1361:Mortgage-backed security 1356:Interest rate derivative 1331:Equity-linked note (ELN) 1316:Credit-linked note (CLN) 451:Kuznetsov, Alex (2006). 1311:Contract for difference 612:Risk-free interest rate 196:between these factors. 1093:Forward Rate Agreement 1321:Credit default option 665:Employee stock option 476:John Wiley & Sons 346:. London: Risk Books. 1448:Mathematical finance 1275:Inflation derivative 1260:Commodity derivative 1232:Single-stock futures 1222:Normal backwardation 1212:Interest rate future 1053:Conditional variance 559:Derivative (finance) 168:or composite option. 1427:Business portal 1280:Property derivative 436:. New York: Wiley. 100:financial engineers 1285:Weather derivative 1270:Freight derivative 1252:Exotic derivatives 1172:Commodities future 859:Intermarket spread 622:Synthetic position 550:Derivatives market 494:Rebonato, Riccardo 180:of the underlying 37:exotic derivatives 1453:Options (finance) 1435: 1434: 1336:Equity derivative 1326:Credit derivative 1294:Other derivatives 1265:Energy derivative 1227:Perpetual futures 1108:Overnight indexed 1058:Constant maturity 1019: 1018: 966:Finite difference 899:Protective option 443:978-0-07-145315-8 424:978-0-07-147734-5 174:convertible bonds 1460: 1425: 1424: 1197:Forwards pricing 971:Garman–Kohlhagen 572: 571: 543: 536: 529: 520: 519: 515: 489: 466: 447: 428: 396: 395: 393: 391: 380: 374: 373: 371: 369: 354: 348: 347: 339: 333: 332: 325:"Exotic Options" 320: 314: 313: 307: 305: 293: 273:Bermudan options 46:over the counter 1468: 1467: 1463: 1462: 1461: 1459: 1458: 1457: 1438: 1437: 1436: 1431: 1419: 1411: 1397:Great Recession 1392:Government debt 1370: 1346:Fund derivative 1289: 1246: 1207:Futures pricing 1182:Dividend future 1177:Currency future 1160: 1142: 1015: 991:Put–call parity 927: 914:Vertical spread 849:Diagonal spread 819:Calendar spread 790: 699: 636: 561: 552: 547: 512: 486: 474:. Hoboken, NJ: 463: 444: 425: 405: 403:Further reading 400: 399: 389: 387: 382: 381: 377: 367: 365: 364:on 4 March 2014 356: 355: 351: 340: 336: 321: 317: 303: 301: 294: 287: 282: 277: 237:Compound option 219: 202: 184:, the issuer's 130:lookback option 108: 96: 81:Federal Reserve 58:Mark Rubinstein 54: 33:vanilla options 17: 12: 11: 5: 1466: 1456: 1455: 1450: 1433: 1432: 1430: 1429: 1416: 1413: 1412: 1410: 1409: 1404: 1402:Municipal debt 1399: 1394: 1389: 1387:Corporate debt 1384: 1378: 1376: 1372: 1371: 1369: 1368: 1363: 1358: 1353: 1348: 1343: 1338: 1333: 1328: 1323: 1318: 1313: 1308: 1303: 1297: 1295: 1291: 1290: 1288: 1287: 1282: 1277: 1272: 1267: 1262: 1256: 1254: 1248: 1247: 1245: 1244: 1239: 1234: 1229: 1224: 1219: 1214: 1209: 1204: 1199: 1194: 1189: 1187:Forward market 1184: 1179: 1174: 1169: 1163: 1161: 1159: 1158: 1153: 1147: 1144: 1143: 1141: 1140: 1135: 1130: 1125: 1120: 1115: 1110: 1105: 1100: 1095: 1090: 1085: 1080: 1075: 1070: 1068:Credit default 1065: 1060: 1055: 1050: 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615: 613: 610: 608: 605: 603: 602:Open interest 600: 598: 595: 593: 590: 588: 585: 583: 582:Delta neutral 580: 579: 577: 573: 570: 568: 564: 560: 555: 551: 544: 539: 537: 532: 530: 525: 524: 521: 513: 511:0-471-97958-9 507: 503: 499: 495: 491: 487: 485:0-470-01684-1 481: 477: 473: 468: 464: 462:0-07-146829-3 458: 454: 449: 445: 439: 435: 430: 426: 420: 416: 412: 407: 406: 385: 379: 363: 359: 353: 345: 338: 330: 326: 319: 312: 299: 292: 290: 285: 274: 271: 269: 268:Variance swap 266: 264: 261: 259: 256: 254: 251: 249: 248:Binary option 245: 243: 240: 238: 235: 233: 230: 228:Cash or Share 227: 225: 222: 221: 214: 211: 206: 197: 195: 191: 187: 186:credit rating 183: 179: 175: 167: 163: 160: 157: 153: 150: 146: 143: 139: 135: 131: 126: 125: 124: 121: 117: 113: 103: 101: 91: 87: 85: 82: 78: 73: 71: 67: 63: 62:exotic wagers 59: 49: 47: 43: 38: 34: 30: 26: 25:exotic option 22: 1202:Forward rate 1113:Total return 1001:Real options 904:Ratio spread 884:Naked option 844:Debit spread 704: 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New York: 497: 471: 452: 433: 413:. New York: 410: 388:. Retrieved 378: 366:. Retrieved 362:the original 352: 343: 337: 328: 318: 309: 302:. Retrieved 203: 194:correlations 171: 109: 97: 88: 84:Paul Volcker 74: 70:Asian option 66:horse racing 55: 24: 18: 1133:Zero Coupon 1063:Correlation 1011:Vanna–Volga 869:Iron condor 655:Bond option 502:McGraw-Hill 415:McGraw-Hill 304:9 September 110:A straight 94:Development 1442:Categories 1407:Tax policy 1123:Volatility 1033:Amortising 874:Jelly roll 809:Box spread 804:Backspread 796:Strategies 632:Volatility 627:the Greeks 592:Expiration 280:References 263:Timer call 192:, and the 178:volatility 116:put option 77:superfecta 1098:Inflation 1048:Commodity 1006:Trinomial 941:Bachelier 933:Valuation 814:Butterfly 748:Commodore 597:Moneyness 390:April 15, 311:economy." 156:moneyness 118:, either 52:Etymology 1237:Slippage 1167:Contango 1151:Forwards 1118:Variance 1078:Dividend 1073:Currency 986:Margrabe 981:Lattices 960:equation 946:Binomial 894:Strangle 889:Straddle 786:Swaption 768:Lookback 753:Compound 695:Warrants 670:European 650:American 642:Vanillas 607:Pin risk 587:Exercise 496:(1998). 253:Lookback 246:Digital/ 217:Examples 205:Barriers 200:Barriers 120:American 106:Features 42:exchange 1156:Futures 776:Rainbow 743:Cliquet 738:Chooser 718:Barrier 705:Exotics 567:Options 368:11 July 300:. Slate 232:Cliquet 224:Barrier 144:, etc.) 21:finance 1217:Margin 1083:Equity 976:Heston 879:Ladder 829:Condor 824:Collar 781:Spread 728:Binary 723:Basket 508:  482:  459:  440:  421:  210:prices 182:equity 166:quanto 29:option 27:is an 1088:Forex 1043:Basis 1038:Asset 1025:Swaps 951:Black 854:Fence 713:Asian 575:Terms 23:, an 922:Bull 918:Bear 660:Call 506:ISBN 480:ISBN 457:ISBN 438:ISBN 419:ISBN 392:2015 370:2013 306:2013 112:call 690:Put 114:or 64:in 19:In 1444:: 920:, 680:FX 504:. 478:. 417:. 327:. 308:. 288:^ 48:. 962:) 958:( 924:) 916:( 542:e 535:t 528:v 514:. 488:. 465:. 446:. 427:. 394:. 372:.

Index

finance
option
vanilla options
exotic derivatives
exchange
over the counter
Mark Rubinstein
exotic wagers
horse racing
Asian option
superfecta
Federal Reserve
Paul Volcker
financial engineers
call
put option
American
lookback option
barrier option
digital option
spread options
basket options
moneyness
quanto
convertible bonds
volatility
equity
credit rating
interest rates
correlations

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