Quote from riskarb:
No, my point was to generalize. They're not fungible, and there is no way to make them so. There is a vanilla/exotic parity with ki/ko options, but those are analogs.
No, it can't be done; any more so than replicating a short straddle. It's a misnomer to term the exotic position as a short straddle, but it's most representative. In either event, they're stat-vol + gamma plays.
The pros are numerous; asym-r/r, trimodal PnL, etc... the flip-side of the coin is the null-bet if the barrier is reached. IMO, the pros dramatically-outweigh the cons as the risk is clearly defined and solved at the strike.
If there is any practical info to be gleaned from this current-tangent; it is that the strong-hedge single no touch is often used to great effectiveness into a directional-trend. Possiblity for convergence gains, b/e result at the strike, windfall beyond the strike. In that sense, it's akin to a long backspread traded at a significant edge-credit. Downside is that a vanilla straddle reaches peak of the distro at the body strike; we b/e at the body strike in the exotic. Hence our neutrality is something >barrier strike unless the hedge is overwhelming.
Into the barrier it's a no lose -- away from the barrier it replicates a vanilla straddle.
