One Touch, No Touch

I was reading about exotic options and I came across something new. One touch down no touch up option and the other one I saw was One touch up no touch down option.

I would like to understand how it works. Does it cease to exist when the barrier is touched or on the expiration date of the option?

A regular one-touch option ceases to exist immediately after the specified barrier is touched no matter how much time is left to the expiration, but a no touch option is also part of the options above so I am not sure how this is going to work?

An Example for the One touch up no touch down option, If the upper barrier is at 110 and the current price is 100 and a lower barrier is at 90.

What happens if the price goes to 90, or 110, or stays between 90 and 110?

 

It's a touch-variation of a vanilla KO call. You can't make a digital variation as they are path-independent and only terminal value would matter. A vanilla KO differs in that it converges to a vanilla call as it trades away from the KO-barrier. The vanilla KO call will always be cheaper than the vanilla call.

In your touch example it would pay out at 100 if it touched 110 before 90. Conversely, you would lose your debit if it touched 90 before 110.

 

That was a clear explanation.

 

I've never priced a a RR touch, but you would use VV. Treating the local barrier as a one touch and discount the payoff by the touch probability of the distant barrier.

 

Does it pay out immediately if price touched 110 first or until expiration?

If it is until expiration that means I can still lose my debit because price could first touch 110, but reverse and also touch 90?

 

It's a touch so it would pay upon touching. A digital pays only on expiration at/above the barrier.

 

No, not as a single trade, but if you're in the EU you can trade the single no touch/single touch at binary.com. They are reputable.

 

Thanks for your replies. I appreciate it, man.