Edokko options: A new framework of barrier options

Abstract

In this paper, we will give a new framework of barrier options to generalize 'Parisian Option' and 'Delayed Barrier Option'. Take a stopping time τ as the caution time. When τ occurs, derivatives are given 'Caution'. After τ, if K.O. time σ = σ (τ) occurs, derivative contracts vanish. We simply say that first 'Caution' second 'K.O.'. Using this framework, designs of barrier options become more flexible than before and new risk management will be possible. New barrier options in this category are called Edokko Options or Tokyo Options. © 2002 Kluwer Academic Publishers.