Rebate Barrier Option

AAA

DEFINITION of 'Rebate Barrier Option'

A financial derivative product that will automatically expire if the underlying asset reaches a certain price, at which time the option holder would be refunded a certain portion of any premium paid. A barrier option is a type of exotic option contract that can be exercised only if the underlying asset reaches a predetermined barrier price.


A barrier option can either be "knock-in," where the contract is exercised if the underlying asset rises above, or drops below (depending on terms), the specified barrier price, or "knock-out," where the contract automatically expires if the underlying asset rises above, or drops below, the barrier price.

INVESTOPEDIA EXPLAINS 'Rebate Barrier Option'

Options contracts give the holder the right, but not the obligation, to buy or sell a financial asset at an agreed-upon price at, or before, a certain specified date in the future. A rebate barrier option is a knock-out option that provides a refund in the event the knock-out occurs. Since the rebate diminishes the option writer's profits, this type of exotic option is not common.

RELATED TERMS
  1. Knock-In Option

    A latent option contract that begins to function as a normal ...
  2. Knock-Out Option

    An option with a built in mechanism to expire worthless, should ...
  3. Double Barrier Option

    An option with two distinct triggers that define the allowable ...
  4. Exotic Option

    An option that differs from common American or European options ...
  5. Barrier Option

    A type of option whose payoff depends on whether or not the underlying ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Exotic Options: A Getaway From Ordinary ...
    Options & Futures

    Exotic Options: A Getaway From Ordinary ...

  2. Getting Started In Forex Options
    Options & Futures

    Getting Started In Forex Options

  3. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  4. A User's Guide To Warrants
    Options & Futures

    A User's Guide To Warrants

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center