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I have two problems:

1) Actually i didn't find anywhere a precise definition of European Knock-Out Option with European Barrier.

2) Assuming that European means that it depends only on starting value of the underlying and the one at maturity, given that the Barrier is European, how would you choose if the Knock-Out is up or down.

3) For example, if it is defined KO up, given the starting value already above the Barrier, the option exists or not?

(i don't think it exists in reality this kind of option but it is asked in my exercise)

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  • $\begingroup$ European barrier is only checked at time $T$. For a call the barrier will be above the strike and is KO-up. For a put the barrier will be below the strike and will be KO-down. $\endgroup$ – noob2 Jun 3 at 19:09

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