Correspondence: Franck Moraux, Université de Rennes 1 and CREM, IGR/IAE de Rennes 11 rue J. Mace 35000 Rennes, France. E-mail: franck.moraux@univ-rennes1.fr

¹is Professor of Finance at the Graduate School of Business and Administration of the University of Rennes 1 (FRANCE). His research covers different fields of quantitative finance such as options theory, credit risk modeling, term structure modeling and risk management. Franck Moraux has published various articles in international academic journals, some of which are referenced on a regular basis.

Received 14 January 2009; Revised 14 January 2009.

Abstract

This article presents a set of exotic barrier options whose appearance/disappearance mechanism lies over a range of values. This family generalizes soft barrier options introduced by Hart and Ross and represents a simple alternative to steps options suggested by Linetsky for reducing knock-out risk. The traditional soft mechanism involves a uniformly distributed process. By contrast, Barrier Range Options use other density functions to account for more complex mechanisms.