Barrier options are vanilla options with path-dependent payoffs. The payoff is not only a function of stock level relative to strike but also dependent upon whether or not the stock reaches certain prespecified barrier level before maturity. 


There are many types of barrier options but 2 common ones: knock-out and knock-in barrier options. 

For knock-out barrier options, the option will be knocked out and become worthless if the underlying asset crosses a prespecified barrier level. 

For knock-in barrier options, the option will be knocked in and become a vanilla option only if the underlying crosses the prespecified level before maturity. 


Depending upon the barrier level relative to the initial underlying asset level, we can have an "up" barrier or a "down" barrier. 

If barrier > initial underlying level --> up barrier. 

If barrier < initial underlying level --> down barrier. 



Add a comment


The NEW website is OUT! 

Go have a look at

You will find the content in the 'Derivatives Academy' section in a book format. 
The full content is not yet available as I am rewriting it and improving it.

You can try the Exotic Derivatives pricer under the 'Derivatives Pricer' section ( I will speed up the page soon as I forgot to compress some images.
Each application allows you to price differents products and contains links towards the correct section of the book. 
You will then be able to get practical and theoretical knowledge quite easily.

I teach quite often using the pricer. You can get so much information and answers to your questions thanks to it.

Take advantage of it as much as you can to hone your knowledge!

If you are looking for junior opportunities in the field of market finance. Register yourself on the website. It's free!

If you have any questions, do not hesitate to contact me on