Explain the Concept of “Path Dependence” in Exotic Options

Path dependence means that the final payoff of an option contract is not only determined by the underlying asset's price at expiration but also by the price movements (the "path") of the asset throughout the option's life. Examples include Asian options, where the payoff is based on the average price over a period, or Barrier options, which activate or deactivate if the underlying price hits a specific barrier level.

This dependence makes their valuation more complex than standard European or American options.