Description

The binary gap call option has a payoff S-K2 if S>K1 and 0 otherwise. The binary gap put has a payoff of K2-S if S<K1. There are some well known special cases: When K2=0 the binary gap call option reduces to a binary asset-or-nothing call with strike K1, while the gap put reduces to a short binary asset-or-nothing put. When K2=K1 the binary gap option reduces to a vanilla option.