A combination of a knock-in option and a knock-out option. More specifically, a KIKO option has two barriers: a knock-in barrier and a knock-out barrier. The option’s payoff gets activated once the knock-in barrier is breached. However, once the knock-out barrier is touched, the option deactivates and dies out (gets knocked out). It’s worth noting that the option getting knocked out has nothing to do with whether it has been knocked-in or not. The knock-out barrier doesn’t cease to exist even when the option gets knocked-in. KIKO options allow investors to hedge against fluctuations in a given rate or price with a preferential rate/ price as long as the rate/ price remains within the knock-in and knock-out barriers.
KIKO options are generally classified as American KIKO options and partial KIKO options.
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