In order to meet a variety of demands, modern financial institutions issue many exotic options besides the vanilla options we have introduced in Chapter 2. An exotic option is an option that is not a vanilla put or call. It usually is traded between companies and banks and not quoted on an exchange. In this case, we usually say that it is traded in the over-the-counter market. Most exotic options are quite complicated, and their final values depend not only on the asset price at expiry but also on the asset price at previous times. They are determined by a part or the whole of the path of the asset price during the life of option. These options are called path-dependent exotic options. Barrier options, Asian options, and lookback options are important examples of path-dependent exotic options.
KeywordsLinear Complementarity Problem Call Option Dividend Yield European Option Barrier Option
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