Barrier Option


DEFINITION of 'Barrier Option'

A type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price.

BREAKING DOWN 'Barrier Option'

Barrier options are considered a type of exotic option because they are more complex than basic American or European options. Barrier options are also considered a type of path-dependent option because their value fluctuates as the underlying's value changes during the option's contract term. In other words, a barrier option's payoff is based on the underlying asset's price path.

  1. Asset-or-Nothing Put Option

    An option payoff that is equal to the asset's price if the asset ...
  2. Cash-Or-Nothing Call

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  3. Knock-In Option

    A latent option contract that begins to function as a normal ...
  4. Cash-or-Nothing Put

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  5. Asset-Or-Nothing Call Option

    A derivative security for which there is no payoff unless the ...
  6. Exotic Option

    An option that differs from common American or European options ...
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