easy · Quantitative Finance

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

1. The option only becomes active and exercisable if the underlying price touches the barrier level.
2. The payoff of the option is capped at the barrier level regardless of the terminal price.
3. The strike price of the option is reset to the barrier level if the barrier is touched.
4. The option contract is terminated and becomes worthless if the underlying price touches the barrier level.

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