A down-and-out put option is a put option that becomes void if the asset price falls below
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A down-and-out put option is a put option that becomes void if the asset price falls below the barrier \(S_{b}\). We must have \(S_{b} where \(P\) is the price of the vanilla put, and \(P_{\mathrm{di}}\) and \(P_{\mathrm{do}}\) are the prices of the down-and-in and the down-and-out options, respectively. Sometimes a rebate is paid to the option holder if the barrier is crossed and the option is canceled; in such a case the above parity relationship is not correct.
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P = Pdi + Pdo;
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The downandout put option is a type of financial derivative where the option becomes worthless knock...View the full answer
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Related Book For
An Introduction To Financial Markets A Quantitative Approach
ISBN: 9781118014776
1st Edition
Authors: Paolo Brandimarte
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