Binary Options

intermediate
binaryone-touchrangeaccrual

Options with only two outcomes — a fixed payout or nothing. Used in structured deposits for enhanced yield through one-touch and range products.

Product Type

Parameters

1.08
0.91.2
1.04
0.81.15
10% p.a.
1% p.a.20% p.a.
1% p.a.
0% p.a.5% p.a.
100000$
10000$500000$

Binary Payoff Structure

Max YieldMin Yield
10%
If price touches 1.04
1%
If price stays above 1.04
1.08
0.97200000000000011.1880000000000002
Total Return
$250
Annualized Return
1.00% p.a.
Yield Type
MIN YIELD
Period Return
0.25%

Scenario Analysis

Understanding Binary Options

One-Touch Options

A one-touch option pays out a specific yield as long as the price level is touched at any point, regardless of where the price ends at expiry.

Textbook Example (Section 6.7)

Your client holds a bearish view about EUR/USD. The bank takes the interest earned from the money market deposit to invest in a one-touch option.

Spot: EUR/USD 1.08, Strike: 1.04, Max Yield: 10% p.a., Min Yield: 1%, Money Market: 2%

Client sacrifices 1% (2% - 1%) for the possibility of a 10% return.

Range Currency Deposits (Double No-Touch)

As long as the currency pair stays within a certain range, the client receives a better yield. If the currency breaches either end, the client gets a lower yield.

Textbook Example
EUR/USD spot: 1.09, Upper Barrier: 1.10, Lower Barrier: 1.06. Max Yield: 8.25%, Min Yield: 2.00%. Binary outcome: either 8.25% or 2.00%.

Range Accrual

Some clients prefer an accrual approach where interest accrues daily — earning the higher rate on days within the range, and the lower rate on days outside.

WORKED EXAMPLE
For 60/90 days in range, 30/90 days outside:

Key Concept

A range accrual option is more expensive than a double no-touch binary. Hence in practice, either the yield will drop or the barrier (range) will narrow compared to the binary version.