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Options VII: Exotic Options

In this chapter we present for reference a summary of some of the exotic option structures that have been and are traded in the market. The term exotic option is used to refer to a family of products that have been designed with non-vanilla payoff profiles, usually to meet specific client requirements. For this reason the main users of exotic options are financial institutions and corporates, while the number of banks that actively offer these products is actually quite limited, reflecting the complexity involved in pricing and managing an exotic option book.1 Generally it is the payoff profile that has been altered in some way, however other standard features that may be adjusted in the make-up of the exotic include ...

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