Exotic Options
Exotic options, a category of derivative securities, feature complex structures and unique payoff mechanisms that differ from standard options like European and American options. These financial instruments include a wide variety of types, such as barrier options, Asian options, and lookback options, each with distinctive characteristics tailored to specific investor needs and market conditions. Pricing exotic options involves advanced mathematical models and computational techniques, often utilizing stochastic processes and partial differential equations to capture the intricate behaviors of their underlying assets. Document below provides some details on the pricing of the following three types of exotic options based on geometric Brownian motion assets.
- Barrier options (e.g., up & out)
- Lookback options
- Asian options