A category of options which trade over the counter and have unusual features including complicated components and complex payoffs. They differ from plain vanilla options in terms of the underlying asset or the mechanism of payoff calculation. Notwithstanding their complexity, exotic options are usually used by dealers in order to help their clients solve complex business problems. The payoff in this category of options depends on other external factors in addition to the price of the underlying. Such factors include exchange rates, average prices, etc.
Examples of exotics include Asian option, chooser option, shout option, average rate option, among others.
Exotic options are also known as non-standard option.
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