Editing Option style (section)

=="Exotic" options with standard exercise styles==
These options can be exercised either European style or American style; they differ from the plain [[vanilla option]] only in the calculation of their payoff value:

===Composite option===
* A '''[[cross option]]''' (or '''composite option''') is an option on some underlying asset in one [[currency]] with a strike denominated in another currency.  For example, a standard [[call option]] on IBM, which is denominated in [[U.S. dollar|dollars]], pays <math>\max(S-K,0) \cdot \text{USD}</math> (where S is the stock price at maturity and K is the strike price). A composite stock option might instead pay <math>\max((S-K),0) FX_T \cdot \text{JPY}</math>, where <math>FX_T</math> is the prevailing exchange rate, that is, <math>FX_T \cdot \text{JPY} = 1 \cdot \text{USD}</math> on the exercise date. The pricing of such options naturally needs to take into account exchange rate volatility and the [[correlation]] between the [[exchange rate]] of the two currencies involved and the underlying stock price.

===Quanto option===
* A '''[[quanto]]''' '''option''' is a cross option in which the exchange rate is fixed at the outset of the trade, typically at 1. These options are often used by traders to gain exposure to foreign markets without exposure to exchange rate. Continuing the example from the composite option, the payoff of an IBM quanto call option would then be <math>\max((S-K),0) FX_0 \cdot \text{JPY}</math>, where <math>FX_0</math> is the exchange rate fixed at the outset of the trade. This would be useful for traders in Japan who wish to be exposed to IBM stock price without exposure to JPY/USD exchange rate.

===Exchange option===
* An '''exchange option''' is the right to exchange one asset for another (such as a sugar future for a corporate [[Bond (finance)|bond]]).

===Basket option===
* A '''[[basket option]]''' is an option on the weighted average of several underlyings.

===Rainbow option===
* A '''[[rainbow option]]''' is a basket option where the weightings depend on the final performances of the components. A common special case is an option on the worst-performing of several stocks.

===Low Exercise Price Option===
* A '''[[Low Exercise Price Option]]''' (LEPO) is a European style call option with a low exercise price of $0.01.

===Boston option===
* A '''[[Boston option]]''' is an American option but with premium deferred until the option expiration date.