We study coated, nanometer-size, ellipsoidal particles that have a semiconductor or polymer core surrounded by a metal coating. We predict that composite materials containing these particles will have much larger enhancement of the nonlinear optical response than had previously been found by using semiconductor colloid suspensions or semiconductor - doped glasses. The enhancement is due to the surface plasmon resonance from the metal dielectric constant that increases the local field in the core material. The frequency of the resonance and the enhancement depend upon the particle shape and the coating thickness, as well as on the specific materials.
Also, we predict intrinsic optical bistability in these new materials and show that the threshold intensity for optical bistability can be greatly reduced by using the coated particles. We predict a switching intensity of silver coated GaAs particles below 100W/cm2