Exotic Options

Exotic options are derivatives contracts with more complex payoff structures, conditions, or features than standard vanilla call and put options. Unlike plain vanilla options that have straightforward payoffs based on the difference between the underlying price and the strike at expiry, exotic options may depend on the path of the underlying price, multiple underlying assets, or conditional trigger events. Common types include barrier options, Asian options, lookback options, binary options, basket options, and compound options. Exotic options are primarily traded OTC between institutional counterparties rather than on exchanges. They are used by corporate treasurers for customised hedging, by structured product issuers to build capital-protected notes, and by sophisticated investors seeking tailored risk-return profiles not achievable with standard listed options on NSE or BSE.