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Derivatives




External Barrier Option


A barrier option in which the reference rate used to trigger the underlying differs from the one used to compute the caplet payoff (or floorlet payoff). In other words, it involves two assets rather than one and the payoff asset of the option differs from the measurement asset. An example is a call option on a basket of stocks which would knock out if the currency denominating the stocks appreciated by a specific amount or beyond a specific level.



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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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