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Derivative Engines - Options Handbook
Introduction
Definition
Call / Put
Strike Price
Volatility
Implied Volatility
Pricing Options
Greeks
Delta Hedging
Volatility Trading
Currency Options
Moneyness
Strike vs Volatility
25 Delta BF & RR
Volatility Matrix
Option Types
Vanilla Options
Barrier Options
Knock In
Knock Out
Double Knock In
Double Knock Out
Knock In - Knock Out
Window Barrier Options
Binary Options
One Touch
No Touch
Double No Touch
Double One Touch
European Digital
European Digital Range
Range Accrual Options
Barrier Options:
As in the
vanilla options
, the
option
buyer has a right to buy or sell an underlying asset from a
strike price
level at the end of the pre defined expiry date.
On the other hand, there is a contidion about the path of the underlying asset during the option period for the barrier option to be exercised. If the condition is not satisfied option buyer can not exercise the option even if at the end of the period strike price is in the money according to the spot price and option ends worthless.
There are two conditions defined for the barrier options. One is “Knock In” condition and the other is “Knock Out” condition.
If barriers are not defined as European (condition will be checked only at expiry date) they are accepted as American. (condition will be checked for the whole period from trade date to expiry date).
Since there is a condition for the option to be exercised, prices of the barrier options are cheaper than the vanilla options.
Derivative Engines is a Real Time option calculator. Please see the online option pricers below.
Options
Structured Products
Vanilla Options
Dual Currency Deposit
Multiple Options Portfolio
Asymetric Forward
Knock In Barrier Options
Zero Cost Collar
Knock Out Barrier Options
Seagull (3 Way Collar)