Exotic Option
A type of option that differs from common American or European options in terms of the underlying asset or the calculation of how or when the investor receives a certain payoff. These options are more complex than options that trade on an exchange, and generally trade over the counter. Investopedia Says:
For example, one type of exotic option is known as a chooser option. This instrument allows an investor to choose whether the options is a put or call at a certain point during the option's life. Because this type of option can change over the holding period, it is apparent that this type of option would not be found on a regular exchange, which is why it is classified as an exotic option.
Other types of exotic options include: barrier options, Asian options, digital options and compound options, among others. Related Terms:
Asian Option
Barrier Option
Bermuda Option
Compound Option
Digital Option
Down-and-Out Option
One-Touch Option
Outperformance Option
Quantity-Adjusting Option - Quanto Option
Vanilla Option |