Some firms face risks that they cannot efficiently hedge using plain vanilla options. This motivates them to resort to exotic options.

For example, consider a basket option where the underlying asset is the average between the FTSE 100 (main UK stock index) and the S&P 500 (main US index). This contract is well-suited for a company that has its investments equally split between the UK and US stock market.

Other exotic options have an even more peculiar design (contract specification, payoff, etc.) so as to meet very particular hedging needs.

What are the two most interesting examples you can think of? Describe the underlying risk that a firm wants to hedge and how the exotic option provides an efficient insurance against it.