Knock-out Option
A barrier option is an option whose payoff is conditional upon the underlying asset's price breaching a barrier level during the option's lifetime. Types Barrier options are path-dependent Exotic derivatives, exotics that are similar in some ways to ordinary Option (finance), options. You can Call option, call or Put option, put in American option, American, Bermudan option, Bermudan, or European option, European exercise style. But they become activated (or extinguished) only if the underlying breaches a predetermined level (the barrier). "In" options only become active in the event that a predetermined knock-in barrier price is breached: # If the barrier price is far from being breached, the knock-in option will be worth slightly more than zero. # If the barrier price is close to being breached, the knock-in option will be worth slightly less than the corresponding vanilla option. # If the barrier price has been breached, the knock-in option will trade at the exact same value as ...
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Exotic Derivatives
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; 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 market.Understanding derivative contracts: types of derivatives
The term "exotic derivative" has no precisely defined meaning, being a colloquialism that reflects how common a particular derivative is in the marketplace. As such, certain derivative instruments have been considered exotic when conceived of and sold, but lost this status when they were traded with significant enough volume. Examples of this phenomenon include
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