Exotic options

[surajthepair]

dear David,

In the sample paper, I have come acroos this expression, European Call = Up-and-out call + Up-and-in call

Can I safely say the same way that:
European Put = Up-and-out put + Up-and-in put/down-and-out put + down-and-in put

European Call = down-and-out call + down-and-in call

 

[David Harper CFA FRM]

Hi suraj,

It is also true that:
Euro call = down-and-out call + down-and-in call

So I am thinking the put analog is both:
1. Euro put = down-and-out put + down-and-in put, or
2. Euro put = up-and-out put + up-and-in put

In the case of (1):
Barrier (H) < S(0): until barrier is reached, only the down-and-out put is active which = put. When barrier reached, only the down-and-in active which also= put

In the case of (2):
Barrier (H) > S(0): until barrier is reached, only the up-and-out put is active which = put. When barrier reached, only the up-and-in active which also= put

Hope that helps, David