A standard option in which the payoff is derived under a specific condition imposed by the model on its underlying or the value of another underlying (of a different class). This conditionality helps create a varity of exotic options which are used to cater to varoius needs of market participants. For example, a conditional currency option gives the holder the choice to not pay the premium (known as a conditional premium) as long as the sport price doesn’t move beyond a particular level.
A conditional option is said to be a basic option (vanilla option) combined with a specific conditions. Other example include cylinder options, rainbow options, and so on.
Comments