# Questions tagged [exotics]

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### Delta-Hedging Exotic Options

I have already figured out that Delta-hedging essentially turns European options into volatility products where you pay implied vol and get paid realized vol for long positions and you pay realized ...
2k views

### For pricing, what types of Exotic Options are suitable using Local Volatility Model or a Stochastic Volatility Model?

I understand that stochastic volatility models should be used when the exotic option payoff is volatility dependent (such as variance swaps and volatility swaps). Stochastic volailtiy models should ...
10k views

### Derivation of the formulas for the values of European asset-or-nothing and cash-or-nothing options

The asset-or-nothing European option pays at t = T the value of the stock when at time T that value exceeds or is equal to the exercise price E, and nothing if the value of the stock is below E. So, ...
6k views

### Pricing of a Forward-start option in a Black-Scholes framework

I have read the pricing procedure of a Forward-start option in a Black-Scholes world in Musiela-Rutkowski, but I don't find their proof clear (pp. 195-6). Let me summarize their argument: Consider ...
7k views

### How to simulate a jump-diffusion process?

I would like to price Asian and Digital options under Merton's jump-diffusion model. To that end, I will have to simulate from a jump diffusion process. In general, the stock price process is given ...
61 views

### Average Strike Option with bounds

I'm looking to price a call option with an exotic feature. The price I'm trying to calculate at time $t=0$ is \begin{equation} C = E^\mathbb{Q}[(S_T-K_T)^+] \end{equation} where $S_t$ is the stock ...
Say I have infinite precision of strikes $K$ (continuous world $dk$) and expirations $T$ (continuous $dT$) all with liquidity (so no practical limitations). What positions in an underlying can't be ...