EAKO - User Guide
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  • Glossary
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  • Call Option
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  • TARF
  • Liability Knock-Out TARF
  • EKI TARF
  • Pivot TARF
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  • Barrier Options
    • Introduction
    • Types of Barriers
    • Time Aspect
    • Knock-In
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    • Knock In Knock-Out
  • Variations on Barrier Options
    • Double Knock-In
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    • European Knock-Out
    • Knock-In European Knock-Out
    • Knock-Out European Knock-Out
    • Performance Knock-In
    • Performance Knock-Out
    • Partial Knock-In
    • Partial Knock-Out
    • Partial Double Knock-Out
    • Forward Knock-In
    • Forward Knock-Out
    • Forward Double Knock-Out
    • Forward Knock-In Knock-Out
    • Knock-Out with Rebate
    • Discrete Knock-Out
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  • Payoff Diagram:
  • Payoff at Expiry:

Liability Knock-Out TARF

Target Accrual Redemption Forward; Target Profit Forward with a Liability Knock Out which will eliminate the leverage/liability.

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Last updated 2 years ago

The addition of the Liability Knock-Out feature is a powerful risk mitigant tool that will eliminate the risk of leverage were the LKO barrier to be triggered. The LKO can either be modelled on a European or American basis. Furthermore, variations of this strategy (Accelerated/Advanced LKO TARF) would see the strategy terminate upon the triggering of the LKO barrier, with any outstanding Target balance paid upfront to the client.

Payoff Diagram:

Payoff at Expiry:

If the Liability Knock-Out Barrier has not been triggered prior to expiry:

At expiry if EURUSD fixes:

  • Above the Strike, the client is fully protected at the Strike on 100% of the Notional subject to the target condition. Once the target is reached the strategy is cancelled and the client will become unhedged.

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

If the Liability Knock-Out Barrier has been triggered prior to expiry:

At expiry if EURUSD fixes:

  • Above the Strike, the client is fully protected at the Strike on 100% of the Notional subject to the target condition. Once the target is reached the strategy is cancelled and the client will become unhedged.

  • Below the Strike, given that the leverage has been reduced from 200% to 0%, the client no longer facing any obligations and can transact at the more favourable market rate.

Liability Knock Out TARF Payoff Diagram