Partial Barrier Options

THE JOURNAL OF FINANCIAL ENGINEERING, Volume 3, No. 3, September/December 1994.

Cass Business School Research Paper

Posted: 3 Nov 2000

See all articles by Ronald C. Heynen

Ronald C. Heynen

Bank of America - Market Risk Management

Harry M. Kat

Independent

Abstract

In this paper we study the pricing of barrier options where the period during which the underlying price is monitored for barrier hits is restricted to only part of the options' lifetime. We derive closed-form formulas for the prices of a number of partial barrier options, including partial asset- or-nothing and cash-or-nothing barrier options. Our results clearly show the importance of the length and the location of the monitoring period for the option price. It is also shown that for options where the monitoring period starts after the options' initial starting date, an alternative interpretation of the barrier condition may lead to a very substantial change in the option price.

JEL Classification: G00

Suggested Citation

Heynen, Ronald C. and Kat, Harry M., Partial Barrier Options. THE JOURNAL OF FINANCIAL ENGINEERING, Volume 3, No. 3, September/December 1994.; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=6081

Ronald C. Heynen

Bank of America - Market Risk Management ( email )

1 Alie Street
London E1 8DE
United Kingdom

Harry M. Kat (Contact Author)

Independent

No Address Available

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