In-out parity
Definition · Level 10 · Derivatives pricing
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Knock-in + knock-out with the same strike, barrier and expiry = the vanilla (ignoring rebates), so each costs less than the vanilla.
Example
Vanilla 8.00, knock-out 5.50 → knock-in 2.50.
Where Tradecraft teaches it
Level 10 · Derivatives pricing, in the lesson “Digitals & barrier options”: Price and hedge binaries with call spreads, and decompose knock-ins and knock-outs.
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