Knock-Out Option

A knock-out option is an option which can only be exercised if the price of its underlying asset does not surpass a predetermined limit (the barrier).

The two primary types of knock-out options are down-and-out barrier options and up-and-out barrier options.

A knock-out double barrier option combines a down-and-out barrier option with an up-and-out barrier option by using two thresholds, one below and one above the initial price of the underlying asset.

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