Encyclopedia of Investment Terminology

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Exotic Option

Options that deal with different measurements from a vanilla option are exotic options. These are options that can use American or European options for when they can be exercised. A variety of different exotic options can be used. A basket option works with weighted averages of many materials, a rainbow option weighs values according to end performances of some factors and quanto options work with fixed exchange rates for different currencies. These are called exotic because they are not utilized as often as vanilla options are.

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