Double Barrier Option

A double barrier option or double knock-out option is a complex type of option which uses two limits (barriers) – one above and one below the initial price of its underlying asset.

A double barrier option may combine an up-and-out option with a down-and-out option (a knock-out option) or it may combine an up-and-in option with a down-and-in option (a knock-in option).

In order for a knock-out double barrier option to be exercisable, the price of the underlying asset cannot rise above a predefined limit and cannot fall below a predefined limit over the course of the option term.

In the case of a knock-in double barrier option, the price of the underlying asset must match or exceed the upper limit or fall to or below the lower limit in order become exercisable.

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