Barrier Reverse Convertible
A reverse convertible with a safety barrier: the nominal is repaid unless the barrier was touched and the underlying ends below the strike.
Payoff at maturity
Move the parameters; the product formula and its building blocks are recomputed from the same engine that is tested against the workbook.
Barrier products are path dependent. The chart shows the redemption at maturity given the scenario you select; whether the barrier was touched is decided by the whole price path, not by the final level alone.
- Barrier never touched
Redemption 108 %
Per 10'000 of nominal
| Underlying at maturity | Level | Redemption | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 108 % | 10'800 | +800 |
| unchanged | 100 % | 108 % | 10'800 | +800 |
| +30 % | 130 % | 108 % | 10'800 | +800 |
Coupons are shown as paid at maturity together with the nominal. Costs, taxes and the price you paid are not included. Scenario: Barrier never touched.
Data table and formulas
Barrier Reverse Convertible (1230), scenario "Barrier never touched": redemption at maturity for an underlying at 0 % → 8 %; 8 % → 16 %; 65 % → 73 %; 100 % → 108 %; 200 % → 108 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Zero Bond | 100 + coupon | 108 | 108 | 108 | 108 | 108 | 108 | 108 | 108 | 108 |
| Short Down and In Put - ATM | if S ≤ barrier: −(100 ÷ strike × max(strike − S, 0)); otherwise 0 | -100 | -75 | -50 | 0 | 0 | 0 | 0 | 0 | 0 |
| Product | if S ≤ barrier: 100 × S ÷ strike + coupon; otherwise 100 + coupon | 8 | 33 | 58 | 108 | 108 | 108 | 108 | 108 | 108 |
Largest difference between the sum of the blocks and the product formula over the grid: 3.6e-15.
How it is built
Each block drawn on its own, then added. The last chart is the sum, and it is identical to the product line above.
- Zero Bond100 + coupon
- Short Down and In Put - ATMif S ≤ barrier: −(100 ÷ strike × max(strike − S, 0)); otherwise 0
- Product: barrier never touchedif S ≤ barrier: 100 × S ÷ strike + coupon; otherwise 100 + coupon
Largest gap between the sum of the blocks and the product formula on this grid: 3.6e-15. The same identity is tested for every product and scenario in the site's test suite.
Construction, as listed in the workbook
- Zero Bond (face = nominal + coupon)
- Short Down and In Put - ATM
In plain English
The sold put is a down-and-in put. It only comes alive if the underlying touches the barrier at some point during the term. Until then it does nothing, and the product repays the nominal plus coupon even if the underlying has fallen somewhat.
Once the barrier has been touched, the product is a plain reverse convertible: nominal plus coupon above the strike, delivery of the underlying plus coupon below it. The coupon is paid in every case.
Chances and risks
Chances
- High coupon paid unconditionally.
- Nominal repaid as long as the barrier holds.
- The most widely issued yield-enhancement structure, so terms are competitive.
Risks
- A single touch of the barrier removes the buffer for the rest of the term.
- Losses below the strike after a touch are one for one.
- Issuer credit risk.
Who it fits
- Investors who expect a sideways market with limited downside and want income.
Who it does not fit
- Investors who cannot absorb equity-like losses after a barrier event.
Features that can be added
Cross-category features from the workbook that issuers attach to this type.
Nearby on the map
- 1200Yield Enhancement ProductsDiscount Certificate
The underlying bought at a discount, in exchange for giving up gains above a cap. - 1210Yield Enhancement ProductsDiscount Certificate with Barrier
A discount certificate that repays the cap in full as long as the barrier is never touched.Barrier - 1220Yield Enhancement ProductsReverse Convertible
A fixed coupon in every case; the nominal is repaid only if the underlying ends at or above the strike. - 1255Yield Enhancement ProductsReverse Convertible with Conditional Coupon
A reverse convertible whose coupon is paid only when the underlying is above a trigger on the observation date; usually with early redemption. - 1260Yield Enhancement ProductsBarrier Reverse Convertible with Conditional Coupon
The barrier reverse convertible with conditional coupons and, usually, an autocall.Barrier