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What Is a Limit Option?


A limit option is, by definition, an exotic option whose payoff depends on whether the underlying asset price reaches a specified threshold (a predetermined knock-in or knock-out price) or not. A knock-in option comes into existence only when the underlying asset reaches the threshold (the limit or the barrier). To the contrary, knock-out options cease to exist if the asset price reaches the barrier.

The limit option is also referred to as a barrier option.



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