Jun 20

Barrier options – 4 min screencast

by David Harper, CFA, FRM, CIPM

FRM |

barrier_option

Relative to plain vanilla options, barrier options have an additional feature: c(S,K, H, volatility, T, r) where H is the barrier. The barrier either knocks-in the option (into existence) or knocks-out (out of existence) the option. Due to this "optionality on the option" the barrier is cheaper (lower premium) than its plain vanilla counterpart

  • Knock-in (up-and-in, down-and-in)
  • Knock-out (up-and-out, down-and-out)

Screencast:

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