EXOTIC OPTIONS

MEMBERS

NAME ROLL NO.VINAYAK BELWADE M4204SAFAL BHAGAT M4205TUSHAR GHOLAM M4213PRATIKSHA KOKATE M4228NIKHIL MUKHANE M4235PRATAMESH SULEGAY M4251

DERIVATIVESA Derivative is an instrument whose value depends on the values of other more basic underlying variables. Types of Derivatives Forwards ,

Futures ,

Options &

Swaps.

INTRODUCTION TO EXOTIC OPTIONS

• The payoff at maturity depends not just on the value of the underlying instrument at maturity, but at its value at several times during the contract's life.

• Traded over the counter (OTC).• Generally negotiated by brokers/dealers.

BINARY OPTIONS• Also called as DIGITAL OPTIONS.• Binary Options are cash-settled as European-style

options, meaning they can only be exercised on the expiration date.

• If, at expiration, the options settle in-the-money, the payoff is “pre-determined fixed amount”. Similarly, if the options settle out-of-the-money, the payoff is “zero”.

• This provides a known upside (gain) or downside (loss) risk assessment.

BERMUDAN OPTIONS

• It is a combination of American options and European options.

• Bermudan options can be exercised at the expiry date as well as certain specified dates in between the creation and expiration of the option's life.

SHOUT OPTIONS

• This is similar to American option. • This option allows the holder to shout at any time

during the life of option.• Here, the holder has a choice of exercising the option

at a shout date or at maturity.• Here the option holder will receive higher of intrinsic

value at a shout date or intrinsic value at expiry.

LOOKBACK OPTIONS

• The option allows the holder to "look back" over time to determine the payoff.

• This type of option reduces uncertainties associated with the timing of market entry.

BARRIER OPTIONS

• Barrier Options are option contracts whose payoff depends on whether or not the price of the underlying asset crosses a certain level during the option's lifetime.

• There are four basic types of barrier options that have slightly different payoff structures.

• These options can be as either puts or calls.Down-and-Out Barrier OptionsDown-and-In Barrier OptionsUp-and-Out Barrier OptionsUp-and-In Barrier Options

ELECTRICITY DERIVATIVESIntroduced in the year1970 in NYMEX ( New York Mercantile Exchange)

Major players in the energy derivative markets include: Major trading houses Oil companies Public utilities & financial institutions

WEATHER DERIVATIVES

• Introduced in 1996in a deal of Aquila Energy and Edison Co.

• This can be used to reduced the risk associated with adverse or unexpected weather conditions.

• Here underlying is temperature ,precipitation and damages caused by the weather.

• USERS:FARMERSFISHERMAN

CHOOSER OPTIONS

• A chooser option is one in which the holder can decide prior to maturity whether the option is call or put option.

• Max (C,P)• It is also called as “AS YOU LIKE IT OPTION”.

ASIAN OPTIONS

• Payoff depends on the average price of underlying assets.

• Average price call max (0, Savg - k)

• Average price put max (0, k - Savg)

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