en     ru     jp
 
 
private banking
private banking
private banking
private banking
private banking
private banking
private banking
     
 
Home
      
Knowledge Base
      
Equity Derivatives and Structured Products Glossary
      
Barrier option
       
 
Back

Barrier option

 Search definitions     
  Search  

Barrier option
Barrier options, also known as Knock-out, Knock-in or Trigger options, are path-dependent options which are either activated (knocked-in)or terminated (knocked-out) if a specified Spot rate reaches a specified Trigger level (or levels) between inception and expiry. Before termination Knock-out options behave identically to standard European-style options, but carry lower initial premiums because they may be extinguished before reaching maturity. In contrast, Knock-in options behave identically to European-style options only if they are activated/ knocked-in and so also command a lower Premium. The standard barrier options have barrier levels that are monitored continually during the lifetime of the Option. Single barrier options that have a barrier level above current Spot are classified as Up-and-out or Up-and-in options. For single barriers below Spot the usual terminology is down-and-out for the Knock-out barrier Option, and down-and-in for the Knock-in barrier Option. Many variations on the barrier theme are available. Barrier levels can be monitored continually, at discrete fixing times (discrete barrier options) or only at the final Expiry Date of the Option (at-expiry barrier options). Barriers may be active only during distinct time intervals (Window barrier options) or may change value at fixed points during the lifetime of the Option (stepped barrier options). Barriers may need to be breached for a certain time before they are considered triggered (Parisian Barrier Options) or may allow for partial triggering depending upon how far beyond the Trigger level the Underlying asset is observed (Soft Barrier options). Barriers may reference a different Underlying to that of the Option itself– such barriers are known as outside barriers.

See also discrete barrier Option, double barrier Option, Parisian barrier Option, path-dependent Option, Trigger, Trigger condition
Posted by  Privatebanking.com
 
  Back  
  Print  
  Email  

 

private banking
private banking
private banking
private banking
private banking
private banking
private banking

 
Home News Library Newsletters Event Calendar Advertise About Contact FAQ
Privacy Policy     Terms of Service
 

©