Cash Or NothingSubtype of
In the call case the payoff amount simply equals C, provided the referenced variable x exceeds some fixed strike K. Otherwise it equals 0.
In the put case the payoff equals C, provided x falls below K. Otherwise it equals 0.
The name Cash Or Nothing results from the fact that the current definition is equivalent to having the folowing two distinct outcomes (from the point of view of the long payoff holder):
Either getting the cash amount C or getting nothing.
The formal definition is as follows:
x is transformed into C if εx > εK and 0 if εx <= εK where ε and K are constants defined in the contract specification.
Furthermore ε can take only the values 1 or -1 and corresponds to a payoff attribute called
K may take any value and is usually referred to as "strike".