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The capital invested and, depending on the product selected, a minimum rate of interest are repaid in their entirety. Unlike other types of investment, they also constitute good diversification vehicles. The market for exotic options is growing rapidly and is extremely innovative, as the stander broad range of products stander (see chart on next page). Another possibility is to purchase an option to enter into a swap, called a swaption. As with currency options, exotic options also exist on interest rates. Unlike stander vanilla” options (ie standard options), stander options have additional features. If the investor has guessed the direction of the market correctly, he or she will enjoy a maximum return. In order to do this, he or she has to renounce part or all of the short-term interest. The stander exotic options stander normally used for types of options which are not standard in the same way as European or stander calls and puts. If the outstrike is never touched the payoff of the out option will be the same as here of the equivalent standard option. Above is an example of a double lock out option. An example for the latter stander be an option on the difference between the EUR and CHF five-year interest rates. For a Europeanstyle option all that matters is whether or not an option has a favourable strike price compared to the underlying market price at expiration. The net present value is then calculated from the average of these quotes. If the buyer of the swaption has to pay a stander interest rate when the option is exercised, then it is known as a payer’s swaption. If the underlying breaches the barrier level the option is automatically terminated. In addition to the strike level, the in option has a predetermined barrier level (the “instrike”). The put could be made out to a face stander of CHF 500 million at a price determined by the swap rate. The first step in defining a swaption is to specify into what kind of swap it can be exercised. Hence, the interest rate payment is “collared” between the floor and cap strikes. The stander examples involving barrier options Prothrombin Time help illustrate how exotic options work. The option is only valid if the instrike is reached during the life of the option. This swaption gives the firm the right to pay a predetermined fixed rate on 25% of its debt. If he/she can receive the fixed rate, however, then it will be called a receiver’s swaption. In addition to the strike level, the out option has a predetermined barrier level (the “outstrike”). As an example, a knock out option is explained above. The trader then usually has to contact several banks and ask for the swap rate relating to the underlying swap.