Barrier Options Overvie w Options definition types examples

Barrier Options

Overvie w ╸ ╸ ╸ ╸ ╸ Options – definition, types, examples Definition of barrier options Comparison options with/without barrier Types of barrier options Examples of barrier options Properties of barrier options Other types of barrier options Pricing and usage of barrier option Conclusion 2

Options In finance, an option is a contract which conveys its owner, the holder, the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date. Call option ╸ Contract to purchase at strike ╸ price Profit when asset price go up Put option - Contract to sell at strike price - Profit when asset price go down 3

Call option - example Buy call option with strike price 100 USD for 5 USD with current value 98 USD Price at maturity Profit Premium Total profit $120 $20 - $5 $108 $8 - $5 $3 $102 $2 - $5 - $3 $98 $0 - $5 $50 $0 - $5 4

Put option - example Buy call option with strike price 100 USD for 5 USD with current value 102 USD Price at maturity Profit Premium Total profit $80 $20 - $5 $15 $92 $8 - $5 $3 $98 $2 - $5 - $3 $102 $0 - $5 $150 $0 - $5 5

Barrier options Barrier option is a type of derivative option contract (payoff depends on the value of the underlying asset), where the payoff only comes into effect if the asset underlying the barrier option’s reached or exceeded a predetermined price specified in the option contract. Knock-In Barrier Options Knock-Out Barrier Options ╸ Comes into existence when the ╸ Validity ceases when the price of asset reaches a specified barrier underlying asset hits a barrier during the time of the contract 6

Comparison of option and barrier option ╸ Above strike price the profit increases for both options ╸ Barrier option profit is limited with increasing price (by the barrier price point) ╸ Barrier option is cheaper, because profit is limited. ╸ Barrier options can be activated (knock-in) or stop existing (knock-out) Knock-In-and-up call barrier option & call option 7

4 types of barrier options Knock-In Up (up-and-in) ╸ spot price starts below the barrier level and has to move up for the option to become activated. Knock-In Down (down-and-in) ╸ spot price starts above the barrier level and has to move down for the option to become activated. Knock-Out Up (up-and-out) ╸ stops existing when the asset price moves above the barrier that was set above the initial price of the underlying security. Knock-Out Down (down-andout) ╸ stops existing when the asset price moves below the barrier that was set below the initial price of the underlying security. 8

Profit for Knock-In

Profit for Knock-Out

Barrier option properties Over the counter (OTC) is trading directly between two parties, without the supervision of an exchange ╸ Not traded in exchange markets, OTC ╸ Path-dependent option – barrier option's payoff is based on the underlying asset's price path ╸ Cheaper premiums than option with no barrier, because of limited profit ╸ Higher risk for buyer for knock-in (has to be activated) and knock-out (can expire worthless) 11

Other types of barrier opt. 1) 2) 3) Rebate Barrier Options: Contains a provision to provide rebates to holders, if the option does not reach the barrier price and becomes worthless. Rebates, in such cases, take the form of a percentage of the premium paid by the holder for the option. Turbo Warrant Barrier Options: Mainly traded in Europe and Hong Kong, Turbo warrant are a type of down-and-out option that are highly leveraged and are characterized by low volatility. They are popular in Germany and are used for speculation purposes. Parisian Option: Option is activated with time spent beyond barrier, not by reaching barrier. Amount of time that the underlying asset's price spends outside and inside the barrier price range is measured in this type of option. 12

Valuation ╸ Black-Scholes model (Reiner & Rubinstein in 1973) S – underlaying price t ╸ Monte Carlo methods r – risk-free rate t – time σ – volatility of daily changes of underlying price W – geometric Brownian motion https: //www. researchgate. net/publication/259274569_Fast_pricing_of_Barrier_options 13

Usage of barrier options ╸ Alternative to common options with lower premium and limited profits ╸ Knock-in option for possible hedge if the price reaches specific level ╸ Forex barrier options – the most common usage 14

Conclusion ╸ Barrier option is option with one more parameter – barrier ╸ Option is either activated or deactivated by crossing the barrier ╸ There exist 4 types of barrier options ╸ Barrier option are not traded in exchange markets ╸ They have lower premium, but limited profit and additional risk ╸ Their valuation is done by Black-Scholes model 15

Thank you for attention 16

Thank you for attention 17

Barrier option examples Knock-In Barrier Option ╸ Assume an investor purchases an upand-in call option with a strike price of $60 and a barrier of $65, when the underlying stock is trading at $55. The option would not come into existence until the underlying stock price moved above $65. While the investor pays for the option, and the potential that it could become valuable, the option only becomes applicable if the underlying reaches $65. If it doesn't, the option is never triggered and the option buyer loses what they paid for the option. Knock-Out barrier option ╸ Assume a trader purchased an up-andout put option with a barrier of $25 and a strike price of $20, when the underlying security was trading at $18. The underlying security rises above $25 during the life of the option, and therefore, the option ceases to exist. The option is now worthless, even if it only touched $25 briefly and then dropped back below. 18

Put option - example Buy call option with strike price 100 USD for 5 USD with current value 98 USD Price at maturity Profit Premium Total profit $92 $8 - $5 $3 $98 $2 - $5 - $3 $102 $0 - $5 $150 $0 - $5 19

Barrier option examples Knock-In Barrier Option ╸ Assume an investor purchases an up-and-in call option with a strike price of $60 and a barrier of $65, when the underlying stock is trading at $55. The option would not come into existence until the underlying stock price moved above $65. While the investor pays for the option, and the potential that it could become valuable, the option only becomes applicable if the underlying reaches $65. 20

Barrier options Barrier option is a type of derivative option contract (payoff depends on the value of the underlying asset), where the payoff only comes into effect if the asset underlying the barrier option’s reached or exceeded a predetermined price specified in the option contract. Knock-In Barrier Options ╸ Comes into existence when the price of asset reaches a specified barrier Knock-Out Barrier Options ╸ Validity ceases when the underlying asset hits a barrier during the time of the contract 21

89, 526, 124$ That’s a lot of money 185, 244 users And a lot of users 100% Total success! 22

Credits Příklad barrier opce Special thanks to all the people who made and released these awesome resources for free: ╸ Presentation template by Slides. Carnival ╸ Photographs by Unsplash 23

4 types of barrier options Call option ╸ Contract to purchase at strike ╸ price Profit when asset price go up Put option - Contract to sell at strike price - Profit when asset price go down 24

Option - example Buy call option with strike price 100 USD for 5 USD with current value 98 USD ╸ Strike price ╸ Profit when asset price go up Buy put option with strike price 100 USD for 5 USD with current value 102 USD ╸ Contract to purchase at strike ╸ price Profit when asset price go up 25

Call option - example Buy call option with strike price 100 USD for 5 USD with current value 98 USD Price at maturity Profit Premium Total profit $50 $0 - $5 $98 $0 - $5 $102 $2 - $5 - $3 $108 $8 - $5 $3 26

Call option - example Buy call option with strike price 100 USD for 5 USD with current value 98 USD Price at maturity Profit Premium Total profit $98 $0 - $5 $102 $2 - $5 - $3 $108 $8 - $5 $3 27

Put option - example Buy put option with strike price 100 USD for 5 USD with current value 103 USD Price at maturity Profit Premium Total profit $98 $0 - $5 $102 $2 - $5 - $3 $108 $8 - $5 $3 28

Overview EDIT IN GOOGLE SLIDES Tady osnova prezentace EDIT IN POWERPOINT® Click on the button under the presentation preview that says "Use as Google Slides Theme". Já chci Potřeba, aby obsahovalo: - Click on the button under the presentation preview that says "Download as Power. Point template". will get a. pptx file that you can edit in You will get a copy of this document on your- vysvětli, You Introduction co je to opce Power. Point. Google Drive and will be able to edit, add or delete Properties - vysvětli, jak funguje (na slides. Remember to download and install the fonts used Usage příkladu) in this presentation (you’ll find the links to the font You have to be signed in to your Google - Vysvětli obecně Principles barrier files needed in theoption Presentation design slide) account. Pricing - Ukaž na příkladu History - Odvoď vlastnosti (+ ten typický Success and disasters, graf) More info on how to use this template at slidescarnival. com/help-use-presentation-template interesting things - Využítí This template is free to use under Creative Commons Attribution license. You can keep the Credits slide or - Pricing, pokud najdu mention Slides. Carnival and other resources used in a slide footer. - Historie a současná popularita - Success and disasters, interesting things 29

Overview Tady osnova prezentace EDIT IN GOOGLE SLIDES EDIT IN POWERPOINT® Click on the button under the presentation preview that says "Use as Google Slides Theme". Click on the button under the presentation preview that says "Download as Power. Point template". You will get a. pptx file that you can edit in Power. Point. You will get a copy of this document on your Google Drive and will be able to edit, add or delete slides. You have to be signed in to your Google account. Remember to download and install the fonts used in this presentation (you’ll find the links to the font files needed in the Presentation design slide) More info on how to use this template at slidescarnival. com/help-use-presentation-template This template is free to use under Creative Commons Attribution license. You can keep the Credits slide or mention Slides. Carnival and other resources used in a slide footer. 30

Hello! I am Jayden Smith I am here because I love to give presentations. You can find me at @username 31

1 Transition Headline Let’s start with the first set of slides

Big concept Bring the attention of your audience over a key concept using icons or illustrations 33

“ Quotations are commonly printed as a means of inspiration and to invoke philosophical thoughts from the reader. 34

This is a slide title ╸ Here you have a list of items ╸ And some text ╸ But remember not to overload your slides with content Your audience will listen to you or read the content, but won’t do both. 35

You can also split your content White Is the color of milk and fresh snow, the color produced by the combination of all the colors of the visible spectrum. Black Is the color of ebony and of outer space. It has been the symbolic color of elegance, solemnity and authority. 36

In two or three columns Yellow Blue Red Is the color of gold, butter and ripe lemons. In the spectrum of visible light, yellow is found between green and orange. Is the colour of the clear sky and the deep sea. It is located between violet and green on the optical spectrum. Is the color of blood, and because of this it has historically been associated with sacrifice, danger and courage. 37

A picture is worth a thousand words A complex idea can be conveyed with just a single still image, namely making it possible to absorb large amounts of data quickly. 38

Want big impact? Use big image. 39

Use diagrams to explain your ideas Lorem Ipsum Lorem Ipsum 40

And tables to compare data A B C Yellow 10 20 7 Blue 30 15 10 5 24 16 Orange 41

Maps our office Find more maps at slidescarnival. com/extra-free-resources-icons-and-maps 42

89, 526, 124 Whoa! That’s a big number, aren’t you proud? 43

89, 526, 124$ That’s a lot of money 185, 244 users And a lot of users 100% Total success! 44

1 Lo Lo ib u lu a re m D dipi m on sc ip co ec in su ng fa g e m d ci lit o lis , s lo ue r is e la d d sit te cu o am m s ei e eg us t, pu et m co s m od ns au te ec ris m te. po tur r. 3 Ve st lu a re m D dipi m on sc ip co ec in su ng fa g e m d ci lit o lis , s lo ue is e r s la d d it te cu o am m s ei e eg us t, pu et m co s m od ns au te ec ris m te. po tur r. 2 Ve st lu a re m D dipi m on sc ip co s ec in u ng fa g e m d ci lit o lis , s lo ue is e r s la d d it te cu o am m s ei e eg us t, pu et m co s m od ns au te ec ris m te. po tur r. ib u Ve st Our process is easy 45

Let’s review some concepts Yellow Blue Red Is the color of gold, butter and ripe lemons. In the spectrum of visible light, yellow is found between green and orange. Is the colour of the clear sky and the deep sea. It is located between violet and green on the optical spectrum. Is the color of blood, and because of this it has historically been associated with sacrifice, danger and courage. 46

You can insert graphs from Excel or Google Sheets 47

Mobile project Show and explain your web, app or software projects using these gadget templates. Place your screenshot here 48

Tablet project Show and explain your web, app or software projects using these gadget templates. Place your screenshot here 49

Desktop project Show and explain your web, app or software projects using these gadget templates. Place your screenshot here 50

Thanks! You can find me at: ╸ @username ╸ user@mail. me 51

Credits Special thanks to all the people who made and released these awesome resources for free: ╸ Presentation template by Slides. Carnival ╸ Photographs by Unsplash 52

Presentation design This presentation uses the following typographies: ╸ ╸ Titles: Red Hat Display Body copy: Raleway Download for free at: https: //www. fontsquirrel. com/fonts/red-hat https: //www. fontsquirrel. com/fonts/raleway You don’t need to keep this slide in your presentation. It’s only here to serve you as a design guide if you need to create new slides or download the fonts to edit the presentation in Power. Point® 53

Slides. Carnival icons are editable shapes. This means that you can: ╸ ╸ ╸ Resize them without losing quality. Change fill color and opacity. Change line color, width and style. Isn’t that nice? : ) Examples: Find more icons at slidescarnival. com/extrafree-resources-icons-and-maps 54

Diagrams and infographics 55

You can also use any emoji as an icon! And of course it resizes without losing quality. �� How? Follow Google instructions https: //twitter. com/googledocs/status/730087240156643328 ���������� and many more. . . 56

Free templates for all your presentation needs For Power. Point and Google Slides 100% free for personal or commercial use Ready to use, professional and customizable Blow your audience away with attractive visuals