easy · Quantitative Finance derivatives

Which characteristic defines a 'knock-out' barrier option?

1. The option only becomes active and exercisable once the underlying price touches the barrier.
2. The option's payoff is capped at the barrier level no matter what the terminal price ends up being.
3. The strike price of the option automatically resets to the barrier level once that barrier level has been touched.
4. The option contract is terminated and becomes worthless if the underlying price touches the barrier level.

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