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There are two general types of exotic options: path-independent and path-dependent. An option is path-independent if its value depends only on the final price of the underlying instrument. Path-dependent options depend not only on the final price of the underlying instrument, but also on all the prices leading to the final price. An exotic ...
These quantities represent a smile cost, namely the difference between the price computed with/without including the smile effect. The rationale behind the above formulation of the Vanna-Volga price is that one can extract the smile cost of an exotic option by measuring the smile cost of a portfolio designed to hedge its Vanna and Volga risks ...
An Asian option (or average option) is an option where the payoff is not determined by the underlying price at maturity but by the average underlying price over some pre-set period of time. For example, an Asian call option might pay MAX(DAILY_AVERAGE_OVER_LAST_THREE_MONTHS(S) − K, 0).
The Timer Call is an Exotic option, that allows buyers to specify the level of volatility used to price the instrument.. As with many leading ideas, the principle of the timer call is remarkably simple: instead of a dealer needing to use an implied volatility to use in pricing the option, the volatility is fixed, and the maturity is left floating.
Example: Stock X is trading for $20 per share, and a call with a strike price of $20 and expiration in four months is trading at $1. The contract costs $100, or one contract * $1 * 100 shares ...
An exotic derivative, in finance, is a derivative which is more complex than commonly traded "vanilla" products. This complexity usually relates to determination of payoff; [ 1 ] see option style . The category may also include derivatives with a non-standard subject matter - i.e., underlying - developed for a particular client or a particular ...
How implied volatility impacts options pricing. Since options are essentially contracts that give you the right to buy or sell an asset at a specified price, volatility directly impacts the value ...
Put options rise in price when the underlying stock falls in price, and this basic option strategy gives the put owner the ability to multiply their money over the duration of the option contract ...