> For the complete documentation index, see [llms.txt](https://eako-capital.gitbook.io/eako-user-guide/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://eako-capital.gitbook.io/eako-user-guide/liability-knock-out-tarf.md).

# Liability Knock-Out TARF

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

{% hint style="info" %}
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.
{% endhint %}

### **Payoff Diagram:**

<figure><img src="https://3557203473-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FYQ7mk2lqrd7KNTuAuSYT%2Fuploads%2FYUgoQLP1lKV0Vi9ubdkG%2FLKO%20TARF.png?alt=media&amp;token=8468de1c-9366-41fb-87d0-be953a359f20" alt="Liability Knock Out TARF Payoff Diagram"><figcaption></figcaption></figure>

### **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.