Exotic Option


DEFINITION of 'Exotic Option'

An option that differs from common American or European options in terms of the underlying asset or the calculation of how or when the investor receives a certain payoff. These options are more complex than options that trade on an exchange, and generally trade over the counter.

BREAKING DOWN 'Exotic Option'

For example, one type of exotic option is known as a chooser option. This instrument allows an investor to choose whether the options is a put or call at a certain point during the option's life. Because this type of option can change over the holding period, it is not be found on a regular exchange, which is why it is classified as an exotic option.

Other types of exotic options include: barrier options, Asian options, digital options and compound options, among others.

  1. Barrier Option

    A type of option whose payoff depends on whether or not the underlying ...
  2. Cliquet

    An extended exotic option that periodically settles and resets ...
  3. Asian Option

    An option whose payoff depends on the average price of the underlying ...
  4. Compound Option

    An option for which the underlying is another option. Therefore, ...
  5. Bermuda Option

    A type of exotic option that can be exercised only on predetermined ...
  6. Quantity-Adjusting Option - Quanto ...

    A cash-settled, cross-currency derivative in which the underlying ...
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