Template:Eqderiv Knock-In and knockout summ: Difference between revisions
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 5: | Line 5: | ||
With a {{eqderivprov|Knock-in Event}}, nothing happens until the event — the Transaction “knocks in” — and then you’re in business. With a Knock-out Event, ''everything'' happens until the event, and then pop, you’re out. | With a {{eqderivprov|Knock-in Event}}, nothing happens until the event — the Transaction “knocks in” — and then you’re in business. With a Knock-out Event, ''everything'' happens until the event, and then pop, you’re out. | ||
The concept of Knock-ins and Knock-outs is, thus, basically simple but good GOD {{icds}} make a meal of it. If you stipulate a {{eqderivprov|Knock-in Price}} ''below'' your strike price, if the {{eqderivprov|Underlier}} falls far enough to hit that price, or go below it, you have a {{eqderivprov|Knock-in Event}}. If your {{eqderivprov|Knock-in Price}} is ''above'' your initial strike, then the {{eqderivprov|Underlier}} has to go ''up'' to hit it. Whether you have hit it is measured at specified certain {{eqderivprov|Knock-in Valuation Time}}s on {{eqderivprov|Knock-in Determination | The concept of Knock-ins and Knock-outs is, thus, basically simple but good GOD {{icds}} make a meal of it. If you stipulate a {{eqderivprov|Knock-in Price}} ''below'' your strike price, if the {{eqderivprov|Underlier}} falls far enough to hit that price, or go below it, you have a {{eqderivprov|Knock-in Event}}. If your {{eqderivprov|Knock-in Price}} is ''above'' your initial strike, then the {{eqderivprov|Underlier}} has to go ''up'' to hit it. Whether you have hit it is measured at specified certain {{eqderivprov|Knock-in Valuation Time}}s on {{eqderivprov|Knock-in Determination Day}}s. | ||
Exactly the same goes for Knock-outs, only in mirror image. | Exactly the same goes for Knock-outs, only in mirror image. | ||
Can we envisage a circumstance in which the {{eqderivprov|Knock-in Reference Security}} is not the {{eqderivprov|Underlier}}? Well, I can’t but I am sure someone at [[Goldman]] could think of one. | Can we envisage a circumstance in which the {{eqderivprov|Knock-in Reference Security}} is not the {{eqderivprov|Underlier}}? Well, I can’t but I am sure someone at [[Goldman]] could think of one. | ||
Latest revision as of 08:39, 10 May 2022
If you have forgotten what it is like to have a tension headache, and for some reason feel like being reminded, the sterling work of ISDA’s crack drafting squad™ on Sections 1.44, for Knock-in Events, and Section 1.45, for Knock-out Events, might just be the aneurysm you are looking for.
It is hard not to have some grudging admiration for the rock-jawed consistency of it: having strangled their way through the language once, the inverse is identical but for “-in” becoming “-out” and a single reference to the event having occurred, for a Knock-in Event, and having not occurred (for a Knock-out Event), as this comparison ably illustrates.
With a Knock-in Event, nothing happens until the event — the Transaction “knocks in” — and then you’re in business. With a Knock-out Event, everything happens until the event, and then pop, you’re out.
The concept of Knock-ins and Knock-outs is, thus, basically simple but good GOD ISDA’s crack drafting squad™ make a meal of it. If you stipulate a Knock-in Price below your strike price, if the Underlier falls far enough to hit that price, or go below it, you have a Knock-in Event. If your Knock-in Price is above your initial strike, then the Underlier has to go up to hit it. Whether you have hit it is measured at specified certain Knock-in Valuation Times on Knock-in Determination Days.
Exactly the same goes for Knock-outs, only in mirror image.
Can we envisage a circumstance in which the Knock-in Reference Security is not the Underlier? Well, I can’t but I am sure someone at Goldman could think of one.