(BQ) Part 2 book "Java methods for financial engineering applications in finance and investment" has contents: Conditional options, complex conditional options, barrier type options, double barrier options, double barrier options, special case barrier options, other exotics. | 12 Conditional Options Conditional options are variations on standard (‘plain vanilla’) options, where the ultimate payoff is derived from a model condition imposed on the underlying or the value of another asset class. Conditional options can be considered as the basic subset of exotic options. Exotic options are a class of derivative that have been developed to meet the needs of particular trading environments. Standard put and call options (and some exotic types) are traded on major exchanges with prices and volatilities being quoted, to reflect demand and risk. In the more sophisticated OTC market many derivatives are specifically designed to address a very particular set of circumstances, these exotic products range from being reasonably simple options based on the well understood Black-Scholes process to complex options, which assume a different economy to the Black-Scholes one. In this chapter and those which follow we will only be considering the case of products that have assets which follow Geometric Brownian motion and subsequently the option generally follows a Black-Scholes type process. This and subsequent chapter’s largely follows the sequence of option taxonomy as originally described by Rubinstein & Reiner in their series of papers from 1991 to 1992. The papers are referenced where appropriate. This taxonomy and further extensions provided by the excellent guide from Haug (1998) largely influence the sequence of discussion and presentation. . Executive Stock Options Executive stock options are a vehicle used to attract and retain key individuals in an organisation. Typically stock options are offered to an employee, where the options can be exercised only at some future date. The rationale is to tie in the employee with a call option to gain in some future time. If the employee leaves within a specified timeframe (the so-called vesting period), the option is cancelled. After the vesting period the option can be exercised at any time within
