Barrier Option


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Barrier Option

An option contract that may only be exercised when the underlying asset reaches some barrier price. A barrier option may either be a knock-in or a knock-out. A knock-in may only be exercised when the underlying asset rises above or falls below (depending on the particular terms) the barrier price. On the other hand, a knock-out automatically expires when the underlying asset rises above or falls below the barrier price. It is important to note that the barrier price is distinct from the exercise price, though, theoretically, they may be set at the same amount. See also: Exotic option.
References in periodicals archive ?
0634 and the lowest since October while GBP-USD broke above a barrier option at 1.
This mechanism is shown to significantly reduce the insolvency risk of the issued contracts, and it implies that the various claims on the company's assets become more exotic and obtain barrier option properties.
An example of a barrier option is a down-and-out call option in which a regular call option gets knocked out; that is, it ceases to exist if the asset price hits a certain preset level.
While AUD gains were aimed at excising a barrier option, the broad USD bearish tone was prompted by a Reuters headline that the S.
This year's case, written jointly by Tepper School faculty and Lehman Brothers traders, involved structuring and valuing a barrier option written on realized volatility and dependent on the value of a particular equity index.
For certain products with extreme sensitivity to oxygen, Graham Packaging's Monosorb(TM) technology can be supplemented with coating technologies, creating yet another barrier option.
With Glaskin, we are providing liquid food manufacturers with a better barrier option that is safe for consumers, maintains the integrity of the product and is environmentally sound.
The barrier option models, down & out, up & out, down & in, and up & in, accommodate rebates that are payable upon hit or at maturity.
However, the payoff of a barrier option is much more dependent on the joint distribution of the underlying asset price at different points in time than is the payoff for a compound option.
Robust static super-replication of barrier options.