Hedging is an agent’s choice, depending on his risk appetite. The market must provide adequate instruments suiting every market participant’s hedging strategy. As of now the instruments available are the linear derivatives and the plain-vanilla options. Hedging is not cost-free.
There is a view that an agent must have the freedom to choose which risk to what extent he should hedge and instruments he uses to hedge. In this context, it is necessary to introduce different styles and structures of options which will enable the market participant to optimise on his hedging strategy.