Extending on the standard barrier option framework and also the Parisian option framework, a new option was developed to reduce the necessity of intentionally shorting the underlying asset when the option is in-the-money and near to expiry from the perspective of the option writer on a standard barrier option. Because this price manipulation is possible to an extent, Parisian and Parasian options were developed in order to reduce this, but the need for products which further prevent this from happening sparked the development of the Edokko option (also known as the Tokyo option).

Pricing:

Introduced in 2002 by Miura and Takahiko, there are several characteristics of this option. First, the time period between now and the maturity date can be broken down into a maximum of 3 sections. The authors (1) define a stopping time which represents the time it takes for the underlying asset price to hit the barrier - this is also known as the caution time or 1st trigger time. Also present is what is known as the safety region, whereby the option contract remains alive - and this region is where:

If this condition is met, then the option never becomes extinguished.

A second region called the caution region is synonymous to a yellow light at a road crossing; it could stem a green light next (in which our option does not become extinguished) or a red light (where our option disappears). It is worthy to point out that the "caution" attribute of the option, once acquired, does not disappear in vanilla Edokko options.

Other Known Names / Variants:

Barrier Options
Cumulative Parisian Options
Parasian Options
Parisian Options
Tokyo Options

Additional/Useful List of resources

Papers:

Miura, R. & Takahiko, F., "Edokko Options: A New Framework of Barrier Options", Journal of Asia-Pacific Financial Markets, 9, 141-151 (2002)

Advanced Readings: