Can I combine a one touch option(barrier lower than current price) and no touch option(barrier higher than current price), so that I get a payout immediately only if the one touch barrier is breached first before the no touch “May be” breached later?

Can a bank, market maker, issuer e.t.c price such a combination of exotics as one single product?

  • 3
    $\begingroup$ Simply adding the two together will not give you the price of one derivative conditional on another. These two products can be used to hedge some of the risks of the combined derivative, and in some scenarios the values may be very very close (but that could change as prices move around) $\endgroup$
    – will
    Sep 21, 2021 at 6:37
  • $\begingroup$ So can a bank price it as one derivative? Is it a complex process? @will $\endgroup$
    – user59094
    Sep 21, 2021 at 18:00
  • $\begingroup$ Yes, no problem to price them. Not just banks, many vendors can do that too. Think of Monte Carlo runs (with whatever model is available), you know at every iteration what the value of the underlying is. $\endgroup$
    – AKdemy
    Sep 22, 2021 at 19:28
  • $\begingroup$ You wrote vendors: did you mean like issuers or brokers et cetera? Also is access to trading such a customized single derivative available for retail or just only for the H.N.W.I and professional traders? @AKdemy $\endgroup$
    – user59094
    Sep 22, 2021 at 23:45
  • $\begingroup$ This link has a list of some vendors. Bloomberg DLIB (derivatives library) for example. If you can trade it will depend on your legislation. This and that may be interesting. If you don't know if it's available or how it can be priced, it's best to not touch it. $\endgroup$
    – AKdemy
    Sep 23, 2021 at 1:29


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