Barrier options

Barrier options

Option contracts that remain dormant until a trigger point (the barrier price) is reached, at which point the call or put option is activated, and results either in a long or short options position, or in the automatic exercise of an options position. One example is an up-and-in call. Assume an exercise price of $50 and a barrier price of $53. If the stock stays below $53, the call option cannot be exercised. If the stock price reaches the $53 barrier price, the holder then has a call option on the shares at $50. These are exotic options.

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 ?
We advise consumers to ask retailers if the unit they are thinking about buying meets the new standard and if not to ask what types of barrier options may be available for a particular unit," said Goldman.
It includes Plain Vanilla Options, Asian Options, all kinds of Barrier Options, Binary / Digital Options and Look-back Options.
Available in multiple barrier options, they offer all the benefits of thermoformable materials plus the high-quality image of foil packages.
After reviewing the technical background, he covers simple exotic options, dual expiry options, two-asset rainbow options, barrier options, lookback options, Asian options, and exotic multi-options.
This paper examines the empirical performance of various option-pricing models in hedging exotic options, such as barrier options and compound options.
Robust static super-replication of barrier options.
Up & in puts are barrier options which become active only after the underlying asset reaches the barrier, which is set higher than the current market at the inception of the trade.
As we reported in April, stricter fuel-permeation regulations are pushing adoption of new barrier options for portable fuel containers (jerry cans) and small fuel tanks.
More specifically, the stakeholders' claims will change from plain vanilla options to more exotic option types with features similar to so-called financial knockout barrier options.
15) Barrier options tend to have regions of very high gammas; that is, the delta changes very rapidly and thus requires frequent rebalancing in certain regions (for example, if the asset price is close to the barrier).
In addition, calibration of the FX Stochastic Local Volatility model to FX barrier options was enabled as well as Backward Monte Carlo pricing of continuous barriers.
For more detailed information, downloadable safety tips and images depicting barrier options, visit www.