Below are given the "exotic options" that are still options, but they have payoffs calculated quite differently from those that I have mentioned in my previous post. Although these instruments are far more unusual and they can also show variations in exercise style (at least theoretically) between European and American:
Lookback Option
A path dependent option where the option owner is given the right to buy (sell) the underlying instrument at its lowest (highest) price over some preceding period is referred to as a lookback option.
Asian Option
An option where the payoff is not determined by the underlying price at maturity but rather than that it is determined by the average underlying price over some pre-set period of time. For instance an MAX(DAILY_AVERAGE_OVER_LAST_THREE_MONTHS(S) – K, 0) might be paid by Asian call option.
The origin of Asian options are the Asian markets. They have been originated in order to prevent option traders from attempting to manipulate the price of the underlying security on the exercise date.
