Reverse 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.
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.
The autocall is path dependent. The chart is the payoff at the final fixing, given that the product was never called early.
- Product
Redemption 108 %
Per 10'000 of nominal
| Underlying at maturity | Level | Redemption | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 70 % | 7'000 | −3'000 |
| 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.
Data table and formulas
Reverse Convertible with Conditional Coupon (1255): redemption at maturity for an underlying at 0 % → 0 %; 8 % → 8 %; 80 % → 88 %; 100 % → 108 %; 200 % → 108 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Zero Bond | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| Short Put - ATM | −(100 ÷ strike × max(strike − S, 0)) | -100 | -75 | -50 | -25 | 0 | 0 | 0 | 0 | 0 |
| Long Cash-or-Nothing Call - OTM | if S ≥ coupon trigger: coupon; otherwise 0 | 0 | 0 | 0 | 0 | 8 | 8 | 8 | 8 | 8 |
| Product | (if S ≥ strike: 100; otherwise 100 × S ÷ strike) + (if S ≥ coupon trigger: coupon; otherwise 0) | 0 | 25 | 50 | 75 | 108 | 108 | 108 | 108 | 108 |
Largest difference between the sum of the blocks and the product formula over the grid: 2.7e-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
- Short Put - ATM−(100 ÷ strike × max(strike − S, 0))
- Long Cash-or-Nothing Call - OTMif S ≥ coupon trigger: coupon; otherwise 0
- Product(if S ≥ strike: 100; otherwise 100 × S ÷ strike) + (if S ≥ coupon trigger: coupon; otherwise 0)
Largest gap between the sum of the blocks and the product formula on this grid: 2.7e-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)
- Short Put - ATM
- Long Cash-or-Nothing Call - OTM (strike = Coupon Trigger, pays the coupon) - one per observation date
- Note: the autocall (early redemption) is path dependent and is not part of the static replication - see Notes
In plain English
The fixed coupon is replaced by a cash-or-nothing call per observation date: the coupon is paid only if the underlying is at or above the coupon trigger on that date. Versions with memory catch up missed coupons once the condition is met again.
Most of these products are autocallable: if the underlying closes above the autocall trigger on an observation date, the product is redeemed early at nominal plus the coupon due. The chart shows the payoff at the final fixing given that the product was never called; the early-redemption mechanism cannot be drawn as a sum of static blocks.
Chances and risks
Chances
- Higher coupon than the fixed-coupon version, because it is conditional.
- Early redemption returns the nominal sooner when the view is right.
Risks
- Coupons can be missed entirely.
- No capital protection below the strike.
- Reinvestment risk after an early call; issuer credit risk.
Who it fits
- Investors who expect a slightly rising market and accept that income is conditional.
Who it does not fit
- Investors who need predictable income.
Features that can be added
Cross-category features from the workbook that issuers attach to this type.
Nearby on the map
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