see also Knock-In Options, Knock-Out Options) An option contract for which the maturity, strike price and underlying are specified at inception in addition to a trigger price. The trigger price determines whether or not the option actually exists. In the case of a knock-in option, the barrier option does not exist until the trigger is touched. For a knock-out option, the option exists until the trigger is touched.
A type of exotic option whose value depends on the underlying passing (or not) a particular price point.... more on: Barrier options
Variations of the standard financial options. They are activated or cease to exist once the price of the underlying security has reached a specified level.
Unlike standard European options where the payoff on expiry depends only on the price of the underlying at expiration, barrier options are path-dependent. In other words, their outcome depends on the performance of the price of the underlying during the life of the option and whether that price breeches some predetermined barrier or level. See 'in' barrier and 'out' barrier options.
Option contracts with trigger points that, when crossed, automatically generate buying or selling of other options. These are exotic options.
In standard "in" barrier options, the option is paid for today but first comes into existence if the asset price hits a predetermined barrier before expiry. In standard "out" barrier options, the option has value today but becomes worthless if the asset hits a predetermined barrier. The "In" and "Out" options can have a pre-specified cash payout. The barrier is usually monitored only at a discrete point in time (close/1200hrs etc). Barriers are one of the most popular class of exotic options.
Binomialoption pricing model Buy write
Options which are automatically created (knock-in) or can-celled (knock-out) when specific events occur, usually when a certain price level (barrier) is reached.