[1][2] Journalist Brian Palmer used the "successful $1 bet on the superfecta" in the 2010 Kentucky Derby that "paid a whopping $101,284.60" as an example of the controversial high-risk, high-payout exotic bets that were observed by track-watchers since the 1970s in his article about why we use the term exotic for certain types of financial instrument.
Palmer compared these horse racing bets to the controversial emerging exotic financial instruments that concerned then-chairman of the Federal Reserve Paul Volcker in 1980.
[3] Exotic options are often created by financial engineers and rely on complex models to attempt to price them.
An exotic option could have one or more of the following features: Even products traded actively in the market can have some exotic characteristics, such as convertible bonds, whose valuation can depend on the price and volatility of the underlying equity, the issuer's credit rating, the level and volatility of interest rates, and the correlations between these factors.
Barriers in exotic option are determined by the underlying price and ability of the stock to be active or inactive during the trade period, for instance up-and-out option has a high chance of being inactive should the underlying price go beyond the marked barrier.