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Username: PrettyWoman Rating:  Asked to: Tom Burke Date Created: 13 Oct 2017 |
| Category | 27 |
| Tag | Financial |
| Question | What is a 'Barrier Option'? |
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Hello PrettyWoman, A barrier option is a type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price. Barrier options are considered a type of exotic option because they are more complex than basic American or European options. Barrier options are also considered a type of path-dependent option because their value fluctuates as the underlying's value changes during the option's contract term. In other words, a barrier option's payoff is based on the underlying asset's price path. Barrier options are typically classified as either knock-in or knock-out. |
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