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Options VII-49:Exotic options

Elsevier Ltd
DOI: 10.1016/b978-075064677-2.50057-7


Publisher Summary This chapter summarizes some of the exotic option structures that have been and are traded in the market. Digital options or binary options have a different payoff profile to vanilla options. There is another type of digital option known as a one-touch option that will pay out a pre-specified amount on expiry if at any time the option was in-the-money, even if it expires out-of-the-money. A contingent or pay later option is one for which no premium is paid at the time the transaction is agreed and premium only becomes payable if the option is exercised. If the option is in-the-money at expiry it must be exercised, triggering the premium payment. The chapter presents four examples of customer uses for exotic option products that often form part of a larger structured product. The examples illustrate the diverse nature of the products involved, as well as the uses to which they can be put.

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