Exotic options embedded in structured products
Most of the time, exotic options are traded in camouflage; they are embedded in structured bonds or certificates. The exotic behavior is translated into a much more user-friendly language that is easier to understand by an everyday investor. For example, a binary payout can be calculated into a coupon yield; the investor gets a higher coupon if the circumstances let the binary option give its payout. A structure that includes a knock-out option could be called an airbag certificate, since as far as a long KO option is not knocked-out, it gives some protection against market losses, similar to an airbag that protects the driver in case of a less serious accident.
Another example is a turbo certificate, ...
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