Vanilla option
In
financial markets,
options are a class of
derivative allowing the
optional purchase or sale of an
underlying instrument.
Another term sometimes used for an option is
contingent claim, reflecting a non deterministic possibilities since the owner of the option is not necessarily
obliged to buy or sell the underlying.
Options typically will fall into on of two distinct categories of complexity - vanilla or exotic.
These two classes are differentiated by the intricacies associated with
valuation; that is, how a fair market price for such a derivative instrument is determined.
Vanilla options are the simpler of the two.
Exotic options, on the other hand, are sometimes referred to as
toxic waste by
Investment Bankers due to the subtle - and at times dangerous - aspects associated with valuation.