Step Double Barrier Options

Double barrier options have been traded for a long time in the markets, and they arc embedded in a variety of popular structured products. In their standard form, however, they lack flexibility inasmuch as they feature a constant barrier level during the entire option life. Step double barrier options overcome tins limitation by allowing investors to set the knock-out or knock-in levels they want at the time of their choosing rather than by imposing an arbitrary mathematical from on the time-varying double barrier Although step double barrier options are actively traded, no analytical formula is knot vu fir their valuation and hedging. This article examines not only regular step double barrier options but also more exotic contracts combining periods with and without active barriers as well as step double barrier options written on several assets. The financial characteristics of these instruments are discussed in comparison with other existing contracts.