Could someone please help me explain the concept of Digital Height clearly in the options world? Thank you
Digital option pays the amount $\delta$ if it ends up in the money otherwise it pays zero. Therefore, the pay-off diagram (pay-off on the y-axis, underlying price on the x-axis) looks like a straight line that starts at $S_T = K$ and the y-axis value of this straight line is equal to $y=\delta$. In other words, the "height" of the pay-off is equal to the digital option pay-off.
In the diagram below, $\delta = C$ and therefore the "height" of the digital option pay-off is $C$.