What Are Exotic Options?

In todays video we will learn all about Exotic Options.

Where we learn all about derivatives and quantitative today we will learn about exotic options, gap options, barrier options lookback options, quantos and many more. in todays class we are going to learn all thing i should do is explain what an exotic option is. the alternatives to these are referred to as “exotic” options. regulatory needs; or offer investors

Unique that are not easily accessible to investors were these products not available. alternative payoffs or payoffs that do not payout options above a specified strike price; performance of the underlying over the option’s life. classes are based on my book, trading and pricing financial derivatives. they are named bermudan options because bermuda these options can

Be exercised on certain bermudan options offer the sellers more control them, and therefore the contract is less expensive but not as inexpensive as a european option these options can be priced using binomial forward start option forward start options are options that start employee stock options are an example of a forward start option. forward start options can be

Valued with a the underlying asset of the first option is simply another option. than one simple direct options position, and however because you make a second payment amount of premiums paid on the two options this is particularly attractive if the underlying with a chooser option, you might choose the expiry is approaching, the underlying may of the money, whereas with

A straddle, you have a “live” put and a “live” call underlying hits a certain level, whichh we a knock-in option has no intrinsic value until a knock-out option is like a vanilla option or puts; or they can be down and in or up and in puts or calls. prices of the underlying during the life of the option. as an example, if you were bullish on facebook’s were

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Confident that it would not exceed $250 to buy a one year up and out call option with the time of writing this book) but a knock-out barrier at $250. payoff is considerably worse the greeks on barrier options behave quite as the stock price moves up, a vanilla call as the stock price moves up, the up-and-out like the vanilla call, but the upward move of the contract by

Moving it closer to the knock out barrier. close to the barrier, and delta can flip rapidly barrier option values can decrease with increasing the up-and-out call described above becomes even though the investor is long volatility binary options, also known as digital options an example would be a payoff of x if st>k, otherwise 0. amount if the underlying’s price is

Above rise if the underlying is well above the strike these are difficult for dealers to hedge well, the strike making the option exercisable differs gap call options payoff st–k1 when st is greater than k2. or minimums of underlying asset price points over the option’s life. the life of the option being from the contract for floating-strike lookback puts, the exercise

For fixed-strike options, the strike is fixed lookback calls the owner gets to exercise is at its highest level over the life of the option. while these options sound like you cannot in a rational market and are considerably more expensive than vanilla options. the payoffs, and these restricted versions asian options asian option payoffs depend on the average rather than

The spot price of the underlying on the expiration date. the primary advantage of asian options is episodes of market manipulation or one-off because of the volatility-dampening effect asian options are very common in the commodities rainbow options rainbow options are those where delivery at this is also considered a type of correlation are sensitive to the correlation

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Among the basket’s constituents. the performance of a basket of assets such typically the owner of a basket option has these are commonly used for currency hedging and often end up being cheaper than individual derivatives where the underlying is denominated a quanto has an embedded currency forward with a variable notional amount. these are used when investors expect

The underlying that the foreign country’s currency will perform well over the same timeframe. well that is it for this video, there is a the rules of youtube state that if you make if you want to see more videos like this, click the subscribe button.

Transcribed from video
What Are Exotic Options? By Patrick Boyle

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