Barrier options

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A barrier option is a type of exotic options whose payoff depends on whether or not the underlying asset has reached or exceeded its predetermined price. Barrier options can be either calls or puts. It can be categorized as "knock in" if the right to exercise the option is met, meaning it has no value until the underlying reaches a certain predetermined price. it can also be "knock out" if the right is not met, which means the option expire worthless if the underlying exceeds a certain price, limiting profits for the buyer but limiting losses for the writer. It is characterized as "up" if the price of the underlying is above certain price, and as "down" if it the price is below certain price. [1]