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Exotic Options & Structured Products

Vanilla options are Lego bricks. This is what gets built with them. Banks bolt calls, puts, digitals and barriers onto a bond and sell the result as a 'note' with a tempting headline coupon — and most buyers never see the option strip they're really long, the put they're really short, or the markup they're really paying. Learn to take any structured product apart, price every piece, and know exactly who is getting paid.

Go beyond vanilla calls and puts into the engineered payoffs that banks actually sell. Price digital (binary) options and replicate them with a tight call spread, meet barrier options (knock-in/knock-out) and the discontinuous-delta hedging nightmare they create, average the path with Asians and lock in the extreme with lookbacks, decode autocallables and cliquets observation by observation, then take a structured note apart to reveal it is just a zero-coupon bond plus an option strip — and learn to count the hidden costs, the issuer credit risk, and the sold put you didn't know you owned. Worked numbers, payoff and path diagrams, an interactive barrier explorer and an autocall ladder throughout.

You already know what a call and a put are worth, how the Greeks move, and how volatility itself trades. Now meet what professionals actually build with those parts. Exotic options are derivatives whose payoff depends on more than just the final price — on whether a level was touched, on the average or the extreme of the path, on an all-or-nothing trigger. Structured products glue those exotics onto a bond and sell the bundle to investors as a single “note” with a friendly name and a tempting coupon.

This is the expert capstone of the derivatives track. The goal is not to admire the financial engineering — it’s to see through it. By the end you’ll be able to take any structured product apart into the bond and options it’s really made of, price each block, spot the option you’re secretly short, and total up the costs the brochure forgot to mention.

Digital (binary) options — all-or-nothing payoffs, why a digital is the limit of a tight call spread, and the violent discontinuous delta that makes them a hedging headache near the strike.
Barrier options — knock-ins and knock-outs, up and down, the elegant in–out parity that ties them back to the vanilla, and the reverse knock-out whose delta explodes right at the barrier.
Path-dependent options — Asian options that settle on the average (cheaper, harder to manipulate) and lookbacks that pay off the best price you never had to time.
Autocallables & cliquets — the best-selling retail structure decoded observation by observation: autocall barrier, coupon barrier, memory coupons, and the deep knock-in put you’re really short.
Structured notes, decomposed — the master skill: every note = a zero-coupon bond + an option strip. Principal-protected notes, participation rates, and the reverse convertible that’s just a bond minus a put.
Payoff engineering & hidden costs — how desks assemble bespoke payoffs, where the markup, bid–ask, dividend and funding assumptions hide, the issuer credit risk you take on, and how to judge whether a product is worth it.

By the end you’ll decompose any structured product into its building blocks, price digitals, barriers, Asians and lookbacks well enough to sanity-check a quote, read an autocallable’s term sheet without flinching, and — above all — answer the only question that matters about a structured note: what am I really long, what am I really short, and who is getting paid?

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