easy · Quantitative Finance derivatives
Which characteristic defines a 'knock-out' barrier option?
- The option only becomes active and exercisable once the underlying price touches the barrier.
- The option's payoff is capped at the barrier level no matter what the terminal price ends up being.
- The strike price of the option automatically resets to the barrier level once that barrier level has been touched.
- The option contract is terminated and becomes worthless if the underlying price touches the barrier level.
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