Chapter 26 Exotic Options

Derivatives such as European and American call and put options are what are termed plain vanilla products. They have standard well-defined properties and trade actively. Their prices or implied volatilities are quoted by exchanges or by interdealer brokers on a regular basis. One of the exciting aspects of the over-the-counter derivatives market is the number of nonstandard products that have been created by financial engineers. These products are termed exotic options, or simply exotics. Although they usually constitute a relatively small part of its portfolio, these exotics are important to a derivatives dealer because they are generally much more profitable than plain vanilla products.

Exotic products are developed ...

Get Options, Futures, and Other Derivatives, Ninth Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.