Investing in Exotic Options

  • Kevin Cheng

15.1 Chapter Introduction and Objectives

In Chap. 14, we introduced the pricing of plain vanilla call and put options on dividend paying and nondividend paying stocks. In this chapter we introduce the pricing of “exotic options.” This chapter has the following objectives:
  • Introduce different types of exotic options

  • Discuss the pricing of Barrier, Look back, Binary, Asian, and spread options

Exotic options are a class of derivative products, which allow the buyer (or seller) of the option to capture return profiles, which are more specific to their expectations or needs. Compared to plain vanilla options and stocks, exotics can have additional features or characteristics that make them more attractive in terms of both risk and reward.

Although the options market has existed for hundreds of years, it was not until the late 1970s when the Black–Scholes model (Black and Scholes 1973) was published that practitioners began to trade more extensively in derivatives. Exotic equity options...


Stock Price Call Option Strike Price Underlying Asset Barrier Option 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  • Kevin Cheng
    • 1
  1. 1.Parallax Capital ManagementSingaporeSingapore

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