Double barrier digital option


A lower barrier knock-out LKO double Barrier Option In this case, if the lower barrier is breached prior to the upper barrier, the option holder is knocked out. If the upper barrier is breached prior to the lower or neither barrier is breached, the holder owns an option. A lower barrier knock-out LKO2 double Barrier Option In this case, if the lower barrier is breached prior to the upper barrier, the option holder gets nothing.

If the upper barrier is breached prior to the lower, the holder receives an option. An upper barrier knock-in UKI double Barrier Option In this case, if the upper barrier is breached prior to the lower barrier, the option holder receives a call or put option.

If neither barrier is breached, the holder owns an option. However, if both the upper and lower barriers are breached during the life of the option, the holder is knocked out.

A double touch knock-in Option DTKI In this case, if both the upper and lower barriers are breached during the life of the option, the holder is knocked-in to a call or put option. Each barrier is continuously monitored for the life of the option. Each barrier is partially monitored for specific windows during the life of the option.

During these windows, the barriers are monitored continuously. During these windows, the barriers are monitored at discrete dates. Each barrier is discretely monitored at specific dates during the life of the option.

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This is complemented by an extensive library of white papers, articles and case studies. A Binary Barrier Option is a type of digital option for which an option's payout depends on whether or not the asset touched a barrier level at some time during the life of the option. The value of the payoff is not affected by the size of the difference between the underlying and the strike price, and can be in the form of a cash payment or delivery of the underlying.

The options described here are path dependent, which means that the payout profile depends on the asset value during the life of the option and the value of the underlying asset when the barrier is hit or on the expiry date of the option.

For a call, the payout is received if the underlying asset price is greater than the strike price, and for a put, the payout is received if the strike is greater than the underlying asset price. There are two classes of binary barrier options. The first are options where a payout of cash or the asset is made if the barrier is hit or not hit during the life of the option. The payout is made either when the barrier is hit, or at option expiry.

For cash payouts, this distinction will only affect the period of time over which the payment is discounted. The premium cost is say USD 60, The premium is usually expressed as the number of basis points paid in order to receive a bp payout, so in this example, the premium is 60bp. If this was the case, once one barrier had been breached the other would still be "alive". It is the addition of two "contingent" Knockout Options, i.

Should one barrier be breached, the other barrier option also dies. The above example is therefore the combination of: