Home » Tags » Exotic-Options

Exotic options

Exotic Options Grab Bag: Shouts, Ladders, and Parisians

By this point in the book, Wilmott has been classifying exotic options into tidy categories. Asian options got their own chapter. Lookbacks got their own chapter. Barrier options got their own chapter. But the universe of exotic derivatives is large and growing, and eventually the classification exercise breaks down. Chapter 28 is where Wilmott gives up on neat categories and just throws a bunch of interesting exotics at us. It is a grab bag, and it is fun.

Derivatives and Stochastic Control: Passport Options

Most options we have seen so far give the holder a choice at one specific moment. With a European option, you decide at expiry. With an American option, you pick the best time to exercise. But what if the option let you actively trade during its entire life, and then insured you against losses? That is the idea behind the passport option, and Chapter 27 of Wilmott’s book uses it to introduce stochastic control.

Asian Options: Pricing Based on Averages

Asian options are probably the most practical exotic derivatives. In crude oil markets, they are not even considered exotic. They are the vanilla. Chapter 25 applies the framework from Chapter 24 to options whose payoff depends on an average price.

Strongly Path-Dependent Derivatives: When History Matters

Barrier options showed us weak path dependence. The contract cared about the path, but we still solved a two-variable problem. Chapter 24 takes the next step: strong path dependence. Cannot be hidden in boundary conditions. We need an extra variable.

Exotic Derivatives: Beyond Vanilla Options

We have spent a lot of time on vanilla calls and puts. But now Wilmott opens Part Two of the book, and things get interesting. Chapter 22 introduces exotic derivatives, contracts that keep quants employed and traders nervous.

About

About BookGrill

BookGrill.org is your guide to business books that sharpen leadership, refine strategy and build better organizations.

Know More

Category

Tags View all tags

Book-Retelling Behavioral-Finance Larry-Harris Market-Microstructure Trading-and-Exchanges Investing Investing-Psychology Paul-Wilmott Quantitative-Finance Finance Hedge-Funds Michael-Pompian Investing-Biases Financial-Markets Trading Wealth-Management Cyril-Demaria Private-Equity Tim-Richards Investor-Psychology Market-Efficiency Psychology Edwin-Burton Sunit-Shah Frank-J-Travers Hedge-Fund-Analysis Investor-Types Due-Diligence Compliance Personal-Finance Private-Banking Thorsten-Hens Economics Free-to-Choose Milton-Friedman Money-Management Hedge-Fund-Compliance Jason-Scharfman Hedge-Fund-Book Hft Richard-C-Wilson Flash-Boys High-Frequency-Trading Michael-Lewis Stock-Market Wall-Street Risk-Management Exotic-Options Asset-Allocation Book-Review Regulation Black-Scholes Capital-Raising Loss-Aversion Private-Debt Prospect-Theory Real-Assets Venture-Capital Cognitive-Bias Iex Interest-Rates Interviews Investor-Behavior Mental-Accounting Risk-Tolerance Volatility Anchoring-Bias Bid-Ask-Spread Bonds Brokers Case-Studies Case-Study Confirmation-Bias Debiasing Derivatives Education Entrepreneurship Financial-Advisory Fixed-Income Goldman-Sachs Hedge-Fund-History History Inflation Ltcm Market-Anomalies Market-Structure Options-Pricing Overconfidence Portfolio-Construction Structured-Products Transaction-Costs Yield-Curve Adam-Smith Algorithmic-Trading American-Options Arbitrage Attribution-Analysis Availability-Bias Best-Practices Binomial-Model