A glance beyond vanillas
Haug (2007a) comprehensively covers the collection of pricing formulas for around 100 exotic derivatives. The
fExoticOptions packages are based on this book. Wilmott (2006), Taleb (1997), and DeRosa (2011) describe a lot of practical issues about them.
The first impression could be that there are way too many exotic options. There are many ways of classification. Market makers talk about different generations of exotics, such as first generation, second generation, and so on. Their approach is from a hedging point of view. We will use a slightly different angle, the end-user approach, and classify the options based on their main exotic feature.
Asian type exotics are about the average. It could be an average ...