A double digital option is a particular variety of option (a financial derivative). At maturity, the payoff is 1 if the spot price of the underlying asset is between two numbers, the lower and upper strikes of the option; otherwise, it is 0.
A double digital option is similar to the exotic option with a few exceptions. for instance a double digital option has two strike prices that is the expected price during the trade season. The option has two types of strikes namely the lower and the upper strikes.1
A double digital with lower strike K1 and upper strike K2 can be replicated by going long a digital option with strike K1 and short another digital option with strike K2.2
Market terminology
In market documentation, a double digital option may also be referred to as a range binary option. FpML examples describe a “European range binary option” as a contract in which the payoff at expiry depends on the underlying remaining below an upper trigger rate and above a lower trigger rate.3
This terminology reflects the payoff structure of a double digital option, which provides a fixed payoff only when the underlying finishes within a specified range at maturity.4
References
References
- "Exotic And Double Digital Options". BOB. May 18, 2013. Retrieved 11 July 2013.
- Park, Bearbear. "An Introduction to Quantitative Finance".
{{cite journal}}: Cite journal requires|journal=(help) - "FpML 4.2 Recommendation - Examples". FpML. Retrieved 11 May 2026.
- "FpML 4.2 Recommendation - Examples". FpML. Retrieved 11 May 2026.