What is a double barrier?
The possibility of a double barrier is a type of financial derivative based on normal possibilities in which one party has the right to complete the agreed agreements under the agreed conditions on the agreed future date. With the possibility of double barriers, there are consequences if the price of the underlying asset reaches the set level before the maturity. The result is usually that the agreement is automatically and immediately completed, or that the whole agreement is canceled. This option includes party A Party B for the agreed cash amount now agrees with the right, but not the obligation to buy a specified amount of shares from B for a fixed price in the future date. Whether to decide to apply the possibility will depend on this date on the actual market price of shares and therefore whether it can buy shares and immediately sell for profit.
With the possibility of double barriers there are two trigger prices. If the market price of the underlying asset reaches one of these trigger prices before the option is due, a specific result is launched. As an exampleImagine that both parties have agreed on options including shares with a current market price of $ 1.50 in USD (USD), with the possibility to buy shares from B for $ 1.75 in three months.
The first trigger price is known as the Knock-In price, which means that the party gets a new option if this price is reached. In the example, the price of Knock-in 2 USD could run, which would start an immediate possibility of $ 1.85. This means that if the price of the shares hits $ 2 USD three months ago, it has a party and a choice of buying $ 1.85 immediately, or waiting for up to three months to buy for $ 1.75, hoping that the market price will remain high.
The second trigcena Ger is known as the knockout price, which means that the agreement is ending immediately. In the example, the knockout price could be $ 1.25, which means that if the shares fall so low, the agreement is immediately canceled. Depending on the terms of the agreement, Party B may return the payment party to create an agreement.
depending on specific prices is possibleTo make the Knock-Out and Knock-in prices in the possibility of a double barrier to prefer one side over the other, for example, risk restrictions. Alternatively, Knock-Out could prefer one side and the knock-in could prefer the other. This added complexity can change both the price party, to pay parties B for creating an agreement, as well as the price party that will require if it trades an attitude in the agreement before a third party before the option comes.