B.2.9 Example 9

The below example explains the DKOT barrier option.

On 01-Mar-2023, Options Bank buys a put option on 1,000 GBP against USD with a strike price of 1.2 GBP. Maturity date is 31-Dec-2023 and Premium paid is 100 GBP.

Parameters of the deal:

Table B-67 Example for DKOT

Contract Type	Value
Trade Date	Wednesday, 01 March 2023
Value Date	Wednesday, 01 March, 2023
Maturity date	Sunday, 31 December 2023
Contract Amount	1000
Contract Currency	GBP
Counter Currency	USD
Option premium	100
Strike Price	1.2
Current Spot Rate at the time of booking	1.2
Option Style	BINARY
Barrier Type	DKOT (Double Knock Out)
Expiration Style	NA
Barrier	1.5
Lower Barrier	1
Fixed Amount to be paid	NA
Fixed Amount Currency	GBP
Earliest exercise date	NA
Monitoring Period	01 March to 31 March

DKOT will fire since barrier is hit.

If, at any time during 01-Mar-2023 and 31-Mar-2023, the spot rate is equal to or higher than the barrier (1.5 GBP/USD) or becomes less than or equal to the lower barrier (1 GBP/USD), this option ceases to be in effect (are knocked out). If on 15-Mar-2023 the spot rate touches the strike price, the option can be exercised even though the barrier window has not yet been completed.

During window period, if barrier was never hit, the buyer of option shall have the right to exercise. All the cases are applicable for EOD processing and online manual Knock in and Knock out screen (OTDXKIKO).