Barrier Option

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A type of exotic option that provides a payoff if the value of the underlying reaches or does not reach a predetermined price or Òbarrier levelÓ. Barrier options are characterized as Òknock inÓ if the right to exercise the option is met, or Òknock outÓ if the right is not met. It is characterized as ÒupÓ if the price of the underlying is above the barrier, and as ÒdownÓ if it the price is below the barrier.

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