Discount Certificate with Barrier
A discount certificate that repays the cap in full as long as the barrier is never touched.
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 110 %
Per 10'000 of nominal
| Underlying at maturity | Level | Redemption | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 70 % | 7'000 | −3'000 |
| unchanged | 100 % | 110 % | 11'000 | +1'000 |
| +30 % | 130 % | 110 % | 11'000 | +1'000 |
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
Discount Certificate with Barrier (1210), scenario "Barrier never touched": redemption at maturity for an underlying at 0 % → 0 %; 70 % → 70 %; 100 % → 110 %; 110 % → 110 %; 200 % → 110 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Zero Bond | cap | 110 | 110 | 110 | 110 | 110 | 110 | 110 | 110 | 110 |
| Short Down and In Put | if S ≤ barrier: −(1 × max(cap − S, 0)); otherwise 0 | -110 | -85 | -60 | 0 | 0 | 0 | 0 | 0 | 0 |
| Product | if S ≤ barrier: min(S, cap); otherwise cap | 0 | 25 | 50 | 110 | 110 | 110 | 110 | 110 | 110 |
Largest difference between the sum of the blocks and the product formula over the grid: 0.0e+0.
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 Bondcap
- Short Down and In Putif S ≤ barrier: −(1 × max(cap − S, 0)); otherwise 0
- Product: barrier never touchedif S ≤ barrier: min(S, cap); otherwise cap
Largest gap between the sum of the blocks and the product formula on this grid: 0.0e+0. 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 = Cap)
- Short Down and In Put (strike = Cap)
- Equivalent: Long Underlying + Short Call - OTM (strike = Cap) + Long Down and Out Put (strike = Cap)
In plain English
The construction is a zero bond with face value equal to the cap, plus a short down-and-in put struck at the cap. If the barrier is never touched, the put never comes alive and you receive the cap. If it is touched, the put activates and the product becomes a plain discount certificate: you receive the underlying up to the cap.
The barrier is a buffer, not a floor. Once it has been touched, every percent the underlying ends below the cap costs you a percent, as if the buffer had never existed.
Chances and risks
Chances
- Maximum redemption even in a moderately falling market, as long as the barrier holds.
- Smaller discount than the plain version, but a buffer against moderate losses.
Risks
- A touch of the barrier removes the buffer entirely.
- Gains above the cap are given up.
- Issuer credit risk.
Who it fits
- Investors who expect a range-bound market and want a buffer against a moderate decline.
Who it does not fit
- Investors who expect a sharp fall during the term.
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. - 1220Yield Enhancement ProductsReverse Convertible
A fixed coupon in every case; the nominal is repaid only if the underlying ends at or above the strike. - 1230Yield Enhancement ProductsBarrier 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.Barrier - 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