## Gap

Subtype of Payoff TypeThis is similar to Vanilla with the twist that there now exist two strikes

**and**

*K***, whereby the first strike**

*K'***sets the trigger and the second strike**

*K***the payoff amount.**

*K'*A payoff amount is only paid if the referenced variable

**is above (call) or below (put) the triger level determined by the first strike**

*x***.**

*K*The exact amount of that payoff - in case it occurs - is unrelated to

**, but solely depends on the second strike**

*K***.**

*K'*It equals

**if call and**

*x-K'***if put.**

*K'-x*This payoff is equivalent to being a) long a Vanilla payoff at the first strike (same Call/Put type) and b) short a Cash Or Nothing payoff at the first strike (same Call/Put type) with cash payoff equal to the difference between the second and the first strike.

Warning: This payoff can be negative depending on the strikes.

The formal definition is as follows:

**is transformed into**

*x***and**

*ε(x-K') if εx > εK***otherwise where**

*0***,**

*ε***and**

*K***are constants defined in the contract specification.**

*K'*Furthermore

**can take only the values**

*ε***or**

*1***and corresponds to a payoff attribute called Direction**

*-1*