A collection of options (exotic options) that developed beyond the boundaries and limitations of plain vanilla options, in the decade of last century. These options were the first generation to appear on top of standard options, and included in particular compound options, barrier options, digital and touch options, average rate options or Asian options, lookback options, etc.
There is no clear dividing line between first generation exotics and second generation exotics. However, the former type does not include complex features or additions as opposed to the latter. The second generation exotics are more sophisticated and complicated in terms of the layers added for determination of their payoff and exercisability, etc.
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