EAKO - User Guide
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  • Barrier Options
    • Introduction
    • Types of Barriers
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  • Variations on Barrier Options
    • Double Knock-In
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    • European Knock-Out
    • Knock-In European Knock-Out
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    • Performance Knock-In
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    • 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:

Ratio Knock-Out Forward

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Last updated 1 year ago

The Knock-Out can be modelled as continuous throughout the entire period of the hedge, windowed between certain dates, or monitored solely at expiry.

The Ratio Knock-Out Forward is a variation which uses leverage to further improve the ITM Strike.

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.

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