A combination of barrier events (in relation to a barrier option, specifically a double barrier option) that takes place in the following sequence: 1) a knock-in (KI) event and 2) a knock-out (KO) event. If the underlying price or rate crosses the knock-in barrier (KI barrier) before it crosses the knock-out barrier (KO barrier), then the option activates).
This situation is known as knock-in dominance: the option can activate (knock in) as long as it did not knock out. An option with this barrier event combination is known as a KIKO option (knock-in, knock-out 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.
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