A digital option in which a bet is made on the underlying price/ rate being higher or lower than a specific level at expiration date. In this sense, the level of the underlying price during the option’s life is irrelevant, as opposed to an American digital option. A European digital pays out a fixed amount depending on where will be the underlying relative to one or two European barriers at the end of the option’s life (what matters is where the underlying at that time is: above the barrier, below the barrier, or within a defined range). If the contract condition is met, the fixed amount is paid at expiration. Otherwise, the option expires out of the money, and no payout is made.
This option has a variety of types and versions including: European digital with knock out, European digital with knock in, European digital with European knock in, European digital with double knock out, European range bet, etc.
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