Summary

The options we've discussed in Chapter 10, Options and Futures are usually called vanilla options that have a close-form solution, that is, the Black-Scholes-Merton option model. In addition to those vanilla options, many exotic options exist. In this chapter, we have discussed several types of exotic options, such as Bermudan options, simple chooser options, shout and binary options, average price options, Up-and-in options, up-and-out options, and down-and-in and down-and-out options. For a European call, the option buyer could exercise their right at the maturity date, while for an American option buyer, they could exercise their right any time before or on the maturity date. A Bermudan option could be exercised a few times before maturity.

In the next chapter, we will discuss various volatility measures, such as our conventional standard deviation, Lower Partial Standard Deviation (LPSD). Using the standard deviation of returns as a risk measure is based on a critical assumption...