KIKO

Knock-In Forward with Knock-Out

The KIKO builds upon the Knock-In Forward by introducing a Knock-Out barrier that enables the client to target an enhanced Strike Rate and/or more attractive Knock-In barrier.

Similarly to the Knock-In Forward, the client has the right but not the obligation to hedge at this rate provided that spot does not trade at or beyond a pre-determined Knock-In Rate. Else, the client is locked into a synthetic forward rate obligation at that strike rate.

In the event that the Knock-Out barrier was triggered, the strategy would be cancelled and the client would be unhedged.

Payoff Diagram:

Payoff at Expiry:

At expiry if EURUSD fixes:

• Above the Knock-Out Barrier, the strategy is cancelled and the client will find itself unhedged.

• Above the Strike but below the Knock-Out Barrier, the client is fully protected at the Strike on 100% of the Notional.

  • The profit on the derivative will fully net off against the loss on the underlying exposure.

• Between the Strike and above the Knock-In Barrier, the client can participate in the favourable movement and transact at the improved Spot Rate.

• Below the Knock-In Barrier, the client will find itself obligated to trade at the Strike level on 200% of the Notional.