What Is the Definition of ‘Exotic Options’ in the Context of Financial Derivatives?

Exotic options are options contracts that are more complex than standard "vanilla" options (calls and puts). They often feature non-standard payoff structures, different exercise conditions, or are based on multiple underlying assets.

Examples include barrier options, Asian options, and lookback options. Their complexity and customization often lead to low liquidity, making them typically traded over-the-counter (OTC) rather than on an exchange.