Looks at exotic options by using the example of digital options.
Written in 2007; 1,635 words; 8 sources; APA; $ 53.95
Paper Summary:
This paper defines exotic options and its variation, digital options, which are also referred to as binary or all-or-nothing options. Specifically, the paper demonstrates ways, including formulas, to price these options using the Black-Scholes, cash-or-nothing (CON) or asset-or-nothing econometric models. After investigating the advantages and disadvantages of digital options, the paper concludes that exotic options help investors find the best solutions for their problems as well as for their strategic financial planning.
Table of Contents:
Introduction
Description
Types of Digital Options
Correlation Digital Option
Pricing
Black-Scholes Model
Cash-or-Nothing (CON)
Calculation Example
Asset-or-Nothing
Target Market
Advantages
Disadvantages
Conclusion
From the Paper:
"For companies that want to invest, there is a huge variety of financial products on the market to choose from. One type of security is the so called option. For sophisticated investors the opportunities are various, however risks for non-specialists can also be extremely high. The following definition simply explains what an option is. ...
"There are many kinds of options. They range from very speculative to rather conservative. First options are differentiated between American and European options."
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