Executive Summary of Exotic Real Options

There are varieties of complicated real life problems that cannot be solved through the market. We can solve such problems through using exotic real options, which have rather complicated payoff structures. Exotic real options can be developed by adding appropriate conditions and provisions to the vanilla contracts. Exotic real option methods are extensive techniques to solve any kinds of real life problems, because they more accurately evaluate the essence of the underlying problems, simplify the problems by modeling, and more easily and successfully solve them through quasi-market techniques, that is, negotiations on the Website and/or over-the-counter. If we cannot convert the essence of the underlying problems into the NPV, we may create simplified exotic real option models, though they carry the risk of misevaluating the essence of the problems. But basically, we can solve the complicated real life problems more easily and successfully by developing exotic real option models and through valuing out of the market. To realize exotic real option transactions, we have to create strict rules and set up a third party monitoring agency. We already have similar contracts and weather derivatives in insurance companies and weather related businesses. Agricultural projects, developing uncultivated areas, and environmental devastation issues may need exotic real option techniques. We will be able to use exotic real option transactions in the near future.