While binary options may be used in theoretical asset pricing, they are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options ( FROs) (on the American Stock Exchange). The former pays some fixed amount of cash if the option expires in-the-money while the latter pays the value of the underlying security.
The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.
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