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A straight call or put option, either American or European, would be considered a non-exotic or vanilla option. 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.
The terms and are put in by-hand and represent factors that ensure the correct behaviour of the price of an exotic option near a barrier: as the knock-out barrier level of an option is gradually moved toward the spot level , the BSTV price of a knock-out option must be a monotonically decreasing function, converging to zero exactly at =. Since ...
The first application to option pricing was by Phelim Boyle in 1977 (for European options). In 1996, M. Broadie and P. Glasserman showed how to price Asian options by Monte Carlo. An important development was the introduction in 1996 by Carriere of Monte Carlo methods for options with early exercise features.
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.
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).
Rho: Rho measures the change in the option price if the risk-free interest rate changes by 1 percentage point. A rising rate raises the price of call options and lowers the cost of put options ...
Time to expiration: Shorter-term options typically have lower implied volatility because of the limited time frame for price moves. Longer-term options, on the other hand, can exhibit higher ...
A discussion of the problem of pricing Asian options with Monte Carlo methods is given in a paper by Kemna and Vorst. [7] In the path integral approach to option pricing, [8] the problem for geometric average can be solved via the Effective Classical potential [9] of Feynman and Kleinert. [10] Rogers and Shi solve the pricing problem with a PDE ...