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 ?
1 Breast implants anatomical sterile, width different from the height of the implant, the maximum projection in the lower 1/3, filled with silicone gel, a minimum of 3 elastomer layer, diffusion barrier option 3 of 4 projections.
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.
Hui, 1997, "Time-Dependent Barrier Option Values", Journal of Futures Markets, 17:667-688
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.
Staikouras, 2004, "Insurance Companies and Firm-Wide Risk: A Barrier Option Approach", Journal of Insurance Research and Practice, 19:62-70
0634 and the lowest since October while GBP-USD broke above a barrier option at 1.
Turtle, 2003, "A Barrier Option Framework for Corporate Security Valuation", Journal of Financial Economics, 67:511-529
Jorgensen, 2002, "Life Insurance Liabilities at Market Value: An Analysis of Insolvency Risk, Bonus Policy, and Regulatory Intervention Rules in a Barrier Option Framework", Journal of Risk and Insurance, 69:63-91
While AUD gains were aimed at excising a barrier option, the broad USD bearish tone was prompted by a Reuters headline that the S.