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Step Double Barrier Option


A barrier option which has barriers both above and below the current underlying price that widen or narrow in steps (gradually) at a prespecified future date. In essence, double-barrier (double knock-out) options are deactivated (knocked out) when the underlying asset first reaches either the upper or the lower barrier. The step part will have the underlying asset price readjust gradually (according to some knock in or knock-out factor) over the option’s life. For example, a step double barrier call option might have a $100 strike, upper and lower barriers (U = 100, L = 80), and a daily knock-out factor of 0.92.

This option is also known as a hot-dog option.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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