Down-and-Out Barrier Option (Put)
Computes the price of a down-and-out barrier put option. It's a knock-out barrier option: it works like a normal put, but is cancelled the moment the asset price touches a barrier below the current level. Because it disappears precisely when the put would be gaining the most value, it's usually worth much less than a plain put, making it cheaper for those betting on moderate declines. The pricing uses the Reiner-Rubinstein formulas. Enter price, strike, barrier, rate, dividend, volatility and term.
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Down-and-Out Barrier Option (Put)
Computes the price of a down-and-out barrier put option. It's a knock-out barrier option: it works like a normal put, but is cancelled the moment the asset price touches a barrier below the current level. Because it disappears precisely when the put would be gaining the most value, it's usually worth much less than a plain put, making it cheaper for those betting on moderate declines. The pricing uses the Reiner-Rubinstein formulas. Enter price, strike, barrier, rate, dividend, volatility and term.
The put that dies if the asset falls too far
The down-and-out barrier option works like a normal put, with a sudden-death clause: it's cancelled the instant the asset price touches a barrier set below the current level. From that touch on, it becomes worthless, regardless of where the asset ends up at expiry.
The cruel detail is that it disappears precisely when a put would be gaining the most value, in the middle of a sharp decline. That's why it's usually worth much less than a plain put, which makes it cheap protection for those betting on moderate declines but unwilling to pay for coverage of the catastrophic scenarios the barrier specifically removes. The pricing uses the Reiner-Rubinstein formulas.
Enter the asset price, the strike, the barrier, the rate, the dividend, the volatility and the term. The tool returns the price of the down-and-out put. When the barrier sits very close to the current price, the chance of being knocked out is extremely high and the value plunges toward zero, reflecting that the protection will hardly survive long enough to be worth anything.
Related Tools
Down-and-Out Barrier Call
Computes the price of a down-and-out barrier call: an option that ceases to exist if the asset touches a barrier below the current price before expiry. Because of that knockout risk, it costs less than a plain call, and the difference is exactly the value of the down-and-in version. The Reiner-Rubinstein closed form holds for a barrier at or below the strike. Enter the spot price, the strike, the barrier, the interest rate, the term and the volatility.
Up-and-In Barrier Option (Call)
Computes the price of an up-and-in barrier call option. It's a knock-in barrier option: it only comes to life if the asset price touches a barrier above the current level before expiry; if it never touches, it expires worthless, however deep in the money it might have been. Because of that extra condition, it costs less than a plain call. The pricing uses the Reiner-Rubinstein closed-form formulas. Enter price, strike, barrier, rate, dividend, volatility and term.
Down-and-In Barrier Call
Computes the price of a down-and-in barrier call: an option that only comes into existence if the asset touches a barrier below the current price before expiry. It's the counterpart of the down-and-out, and the sum of the two is exactly a plain call: either the barrier is touched (activating the in) or it isn't (keeping the out). Because it depends on a trigger, it costs less than a plain call. Enter the spot price, the strike, the barrier, the rate, the term and the volatility.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.