Double digital option
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A double digital option is a particular variety of option (a financial derivative). At maturity, the payoff is 1 if the spot price of the underlying asset is between two numbers, the lower and upper strikes of the option; otherwise, it is 0.
A double digital option is similar to the exotic option with a few exceptions. for instance a double digital option has two strike prices that is the expected price during the trade season. The option has two types of strikes namely the lower and the upper strikes.[1]
A double digital with lower strike K1 and upper strike K2 can be replicated by going long a digital option with strike K1 and short another digital option with strike K2.[2]
Market terminology
[edit]In market documentation, a double digital option may also be referred to as a range binary option. FpML examples describe a “European range binary option” as a contract in which the payoff at expiry depends on the underlying remaining below an upper trigger rate and above a lower trigger rate.[3]
This terminology reflects the payoff structure of a double digital option, which provides a fixed payoff only when the underlying finishes within a specified range at maturity.[4]
References
[edit]- ↑ "Exotic And Double Digital Options". BOB. May 18, 2013. Retrieved 11 July 2013.
- ↑ Park, Bearbear. "An Introduction to Quantitative Finance".
{{cite journal}}: Cite journal requires|journal=(help) - ↑ "FpML 4.2 Recommendation - Examples". FpML. Retrieved 11 May 2026.
- ↑ "FpML 4.2 Recommendation - Examples". FpML. Retrieved 11 May 2026.
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