Knock In – Knock Out:

In this Barrier options type there is one knock in and one knock out barrier. In the market KIKO is applied in two ways according to the validity period of the Knock Out;

Knock Out until expiration:

Option is opened invalid at the trade date. If until expiration Knock In barrier is hit and Knock Out barrier is not hit option will be priced like a Vanilla option at the expiry date. If until expiration Knock In Barrier is not hit or at any time Knock Out Barrier (Even though Knock In Barrier is hit before) is hit then option will end worthless.

Knock out until knock in:

Knock out until knock in option is opened invalid at the trade date. If until expiration Knock In barrier is hit and until Knock In event, Knock Out barrier is not hit option will be priced like a Vanilla option at the expiry date. If until expiration Knock In Barrier is not hit or at any time Knock Out Barrier (If Knock In is hit then Knock Out is canceled and is not followed) is hit then option will end worthless.
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