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BARRIER OPTION Definition & Legal Meaning

Definition & Citations:

A COMPLEX DERIVATIVE contract that creates or extinguishes an underlying EUROPEAN OPTION as the price of the market reference moves through a specified BARRIER. Four versions of the barrier option are commonly used, including the DOWN AND IN OPTION, DOWN AND OUT OPTION, UP AND IN OPTION, and UP AND OUT OPTION. The fact that the underlying option may be extinguished, or may never be created, means that a barrier option is typically less expensive than an otherwise equivalent European option. Also known as KNOCKIN OPTION, KNOCKOUT OPTION. See also REVERSE BARRIER OPTION.


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