Forward Knock In

Knock In forward product offers better rate than the normal forward rate by adding a Knock In criteria to the standart forward product. If market touches to Knock In level through the life of the product hedger will make the fx transaction from a more favorable rate than forward rate. If market never touches to Knock In level through the life of the product no fx transaction is realized at the maturity date.



Applications:

By doing the Forward Knock In structure, hedger gets an oppurtunity to make his hedge better than the forward rate by applying his view on the market. On the other hand if the view of the hedger is not realized in the market, forward knock in product does not protect the hedger. 

 Advantages:

-              Hedger makes the transaction from a better rate than the forward price.

-              Product is formed costless

 Disadvantages:

-              If market does not touch to Knock In level no fx transaction will be realized at the maturity date and hedger will have no protection against market moves.

  • Financial Asset                                   : USD/TRY
  • Position at maturity                           : USD/TRY Long
  • Amount                                                 : USD 1,000,000
  • Spot Rate                                             : 1.550
  • Forward Rate                                      : 1.5580
  • Forward Knock In Rate                     : 1.5450
  • Knock In Level                                   : 1.5350
  • Advantage according to forward   : 230 ticks
  • Tenor                                                     : 30 days



    The payoff chart of the above example is below,

    Go Pricing



     





    • DE Pricing Engine
    Derivative Engines Real Time Option Pricing Engines are free for a limited time.
    Sign Up free...



    Sign in        Sign Up


    • What can you do with Derivative Engines ?

    Option Pricing
       - Single Vanilla Option
       - A Portfolio of Vanilla Options
       - Single Barrier Options
       - Binary Options
       More in research...

    Structured Products Pricing
       - Investment Products
       - Hedging Products
       - Trading Products
       More in research...

    Trading Strategy Auto Suggestor
       On research...