Description

Barrier options are vanilla call and vanilla put options that are either activated or canceled based on the underlying asset hitting a certain barrier. There are three features that specify the type of barrier option: 1) Down / Up. There are two sort of barrier options based on the barrier being either above (up) or below (down) the current price of the underlying. 2) In / Out. The option can either be activated (in) or canceled (out) as a consequence of hitting the barrier. 3) Call / Put - the two type of vanilla options. These three features result in a total of 8 different types of barrier options. E.g. a down-an-in-call is a call which is activated when the underlying moves down and hit the barrier. Some barier options have a rebate that gets paid as a compensation when the barrier is not hit.