An OTC swap which features both a knockout and contingent coupon mechanism. The issuer receives the coupon, whilst the holder receives an adjusted rate linked to the LIBOR rate. The knockout feature allows the holder, when markets rise above a barrier limit (say 10%), to terminate the swap and invest the initial capital elsewhere. For the issuer, the knockout makes the option less costly and it can also offer the holder potential coupon well in excess of the risk-free rate, upon the meeting of swap requirements (for the coupon receiver, the market should remain relatively flat and not trade above the barrier).
August 10, 2024
