Research on the comparison of common exotic option applications for Alibaba and Amazon

Abstract

With the globalization of the financial market, the volatility of the global financial system and the aggravation of competition, it is more important to analyze the functions of various derivatives. Because of the differences in execution prices or payment structures, exotic options are used for different customized functions of investors' needs. Therefore, it is of great significance to study the impact of different exotic options on return for underlying assets. To analyze this topic, two similar e-commerce companies, Alibaba and Amazon, are selected as the asset representatives. Meanwhile, this study will explore exotic options, including binary, lookback, and chooser options, to find whether the two assets have the same most suitable type of exotic option with the highest payoff. The research makes these four common exotic options comprehended better, and provides suggestions, especially for investors of Alibaba and Amazon.