Principle:Avhz RustQuant Exotic Option Contracts
| Knowledge Sources | |
|---|---|
| Domains | Derivatives, Option_Pricing, Exotic_Options |
| Last Updated | 2026-02-07 20:00 GMT |
Overview
Non-standard option contracts with payoff structures that depend on path history, averaging, power transformations, or barrier levels, extending beyond vanilla European options.
Description
Exotic options are derivatives with payoff features more complex than plain vanilla calls and puts. They are widely used in structured products and over-the-counter markets. Key types include:
- Asian options: Payoff based on the average price over the life of the option (arithmetic or geometric averaging, fixed or floating strike)
- Power options: Payoff raised to an exponent (e.g., max(S^n - K, 0))
- Barrier options: Activated or deactivated when the underlying hits a barrier level
- Binary options: Pay a fixed amount or nothing depending on whether the option expires in-the-money
Exotic options typically lack closed-form solutions and require Monte Carlo simulation for pricing.
Usage
Use exotic option contracts when modeling structured products or when the payoff depends on path history (Asian), power transformations (Power), or barrier crossings (Barrier). These contracts require Monte Carlo pricing via the MonteCarloPricer trait.
Theoretical Basis
Asian option payoff (arithmetic, fixed strike, call):
Power option payoff:
Barrier option: The payoff is conditional on whether the underlying crosses a barrier level B during the option's life. Types include knock-in (activated) and knock-out (deactivated).
All exotic option types share a common OptionContract base that specifies type_flag (call/put), exercise_flag, and optional strike_flag.