Exotic options

The more complex types of option are regarded as exotic, as opposed to the relatively straightforward European, American and Asian types of option.

Examples include:

  • Knock-out options: these lapse if the price goes above or below a certain level. They can be much cheaper than vanilla options as much of the value of options greatly dependent on the chances of extreme circumstances.
  • Knock-in options: These are the converse of a knock-out option. They can only be exercised if the price of the underlying has crossed a particular level. Knock-out option and knock-in options are both types of barrier options.
  • Options on options: These are very high volatile securities whose nature is fairly obvious.
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