A structured product that gives the holder an opportunity to buy an underlying asset at less than market price (i.e., with a discount). Investors hold discount certificate in the expectation that the price of the underlying asset at expiration date will be above a specific cap level. Otherwise, the holder will receive the market value of the underlying asset. And if the price exceeds the cap level, no more income will be earned, as the cap level prevents any further gains.

A discount certificate consists of two parts: a long zero-coupon call (or the so-called low-exercise price option/ LEPO) and a short call option (with an ATM strike or OTM strike). The investor pays less than the market price (spot price) at the issuance date of the certificate thanks to the premium received on the short call.

The payoff profile of a discount certificate is identical to that of a reverse convertible, and they only differ in terms of construction.

Discount certificates belong to the broader class of equity structured products and specifically yield products (yield enhancement products).