An option whose terminal value depends wholly or partially on the price sequence (path) of the underlying over a specified period of time. That is, the option’s payoff is a function of the average of a series of prices at a sequence of nodes during the option’s life, rather than the final price of the underlying when the option expires or is exercised. On the contrary, the value of a regular option (such as a European option) is determined by the value of the underlying on exercise or at expiration date. The value of a European call, for example, is determined by the value of its underlying only at expiration. Chooser options, barrier options, Asian options, and look-back options are all examples of path-dependent options. There are two types of path-dependent options: soft path-dependent options and hard path-dependent options.

The opposite of path-dependent option is path-independent option.