Barrier Option
An exotic option whose payoff depends on whether the underlying touches a specified barrier price during the contract life. Knock-in barriers ACTIVATE the option only if the barrier is touched (otherwise the option expires worthless). Knock-out barriers CANCEL the option if the barrier is touched (otherwise it converts to a vanilla payoff). Barrier options are usually cheaper than vanilla options because the barrier condition removes some of the optionality, which is why they are commonly embedded in structured products: the bank uses the discount to fund other features marketed to retail.
Lessons that use this term
Related terms
American Option · Asian Option · Basket Option · Butterfly Spread · Calendar Spread · Cash-Secured Put
Open this term in the app → — no account needed; browse the full glossary while you research.