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- Title
An introduction to exotic options.
- Authors
Zhang, Peter G.
- Abstract
The purpose of this article is to have a bird's eye view of exotic options. The following section reviews some necessary concepts of the standard options or the plan vanilla options. Section 2 describes the most popular group of exotic options--path-dependent options which include Asian options or the average price options, barrier options, look-back options, ladder options and Forward-Start options. Section 3 introduces one large group of exotic options--correlation options lack of flexibility. Each kind of exotic option, to some degree, is one that overcomes one limitation of vanilla options. This will be clearly seen in the following sections. There are four popular kinds of path-dependent options: Asian options; barrier options; look-back options; and ladder options. Forward-Start options are options with up-front premium payments yet start in pre-specified future time with strike prices equal to the starting underlying asset prices. Thus, future-start options can be considered as simple spread options in which the spreads are the differences between the same underlying asset prices at two different time points compared to standard simple spread options over the differences of two underlying assets. Future-starting options normally exist in interest rate market when investors can use them to bet interest rate changes.
- Publication
European Financial Management, 1995, Vol 1, Issue 1, p87
- ISSN
1354-7798
- Publication type
Academic Journal
- DOI
10.1111/j.1468-036X.1995.tb00008.x