July 10th, 2013, 6:57 am
Onetouch = American binary call or putNo touch option pays if the barrier is not touched any day till expiry.I understand that No touch <> 1 - Onetouch, since maturities are different (to be more precise...one touch can expiry before it's specified maturity)What if we take a Onetouch - the one which pays only at the end,Can we then have NoTouch = 1 - OneTouch? (assuming interest rates are 0)On the basis of above statement it will mean that there is no hedging cost for other greeks. For instance as soon as the barrier is touched i stop hedging....coz all my risk is for interest rates which is 0. the payoff can't change! Same is not true for a notouch...it has all the greeks like delta gamma vega valid till expiry. And pricing = cost of hedges/greeks...so the symmetry can't hold. Am I missing something fundamental here?