Price a European Barrier Option

Similar to vanilla calls/puts for foreign exchange, European barrier options in Fairways FX are options to buy or sell a foreign currency at a predetermined strike price (exchange rate) with a barrier at the maturity of the option.

 

Log In to Fairways FX
  1. Log in to your Fairways FX account, e.g. https://login.financeactive.com/login.
  2. Select an account.

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Price a European Barrier Option
  1. Navigate to Pricing Tools.
  2. Click Select Pricing Tools > European Barrier Option Pricing.

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  1. Complete the form with all relevant details.

Note: Fields marked with an asterisk * are mandatory.

Field

Description

Market Date

Date on which the option is priced.

Currency Pair

Currencies to buy (for a call) or to sell (for a put).

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Field

Description

Type

Direction of the option.

Strike

Exchange rate level at which the option can be exercised. This rate is usually compared to the spot rate to determine the moneyness of the option.

Exercise Date

Start date of the option.

Value Date

2 calendar days later than the exercise date.

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Field

Description

Notional Amount

Nominal amount invested in the option.

Currency

Currency of the notional. The premium is paid or received in this currency.

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Field

Description

Barrier Option Type

Note: This field only displays if the barrier option is included.

Behavior between the spot price and the barrier level:

  • Up In: If the underlying FX rate is higher than the barrier level at maturity, the option can be exercised.
  • Up Out: If the underlying FX rate is higher than the barrier level at maturity, the option vanishes.
  • Down In: If the underlying FX rate is lower than the barrier level at maturity, the option can be exercised.
  • Down Out: If the underlying FX rate is lower than the barrier level at maturity, the option vanishes.

Barrier Rate

Value of the barrier.

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Field

Description

Spot Rate

Specific rates to price the option.

Forward Points (bp)

Volatility

Note: Click the adjacent last referenced rates in the application to use them.

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  1. Click Validate to price the option.

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The pricing results display.

Note: Click +/-5 to simulate different results.

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