Knowledge

Parisian Option

A barrier option for which the barrier feature (knock in or knock out) is only triggered after the underlying asset has spent a certain prescribed time beyond the barrier. The effect of this more rigorous triggering criterion is to smooth the option value (and delta and gamma) near the barrier to make hedging somewhat easier. It also makes manipulation of the triggering, by manipulation of the underlying asset, much harder. In the classical Parisian contract the 'clock' measuring the time outside the barrier is reset when the asset returns to within the barrier. In the Parasian contract the clock is not reset but continues ticking as long as the underlying is beyond the barrier.