B.2.6 Example 6
The below examples explain the UOKO barrier option introduced instead of Single Knock Out as per Swift 2023 standard.
Case 1 - market price equal to barrier
On 01-Mar-2023, Options Bank buys a put option on 1,000 GBP against USD with a strike price of 1.2 GBP. Maturity date is 31-Dec-2023 and Premium paid is 100 GBP.
Parameters of the deal:
Table B-61 Example A for UOKO
| Contract Type | Value |
|---|---|
|
Trade Date |
Wednesday, 01 March 2023 |
|
Value Date |
Wednesday, 01 March, 2023 |
|
Maturity date |
Sunday, 31 December 2023 |
|
Contract Amount |
1000 |
|
Contract Currency |
GBP |
|
Counter Currency |
USD |
|
Option premium |
100 |
|
Strike Price |
1.2 |
|
Current Spot Rate at the time of booking |
1.2 |
|
Option Style |
BINARY |
|
Barrier Type |
UOKO (Up and Out Knock Out) |
|
Expiration Style |
NA |
|
Barrier |
1.5 |
|
Fixed Amount to be paid |
NA |
|
Fixed Amount Currency |
GBP |
|
Earliest exercise date |
NA |
|
Monitoring Period |
01 March to 31 March |
SKOT will fire since barrier is hit.
If at any time during 01-Mar-2023 and 31-Mar-2023, the spot rate equal to the barrier 1.5 GBP/USD, this option gets knocked out and a rebate is paid by the seller of the option to buyer either on the knock out date or on maturity date.
Case 2- Market price is greater than barrier
On 01-Mar-2023, Options Bank buys a call option on 1,000 GBP against USD with a strike price of 1.2 GBP. Maturity date is 31-Dec-2023 and Premium paid is 100 GBP.
Table B-62 Example B for UOKO
| Contract Type | Value |
|---|---|
| Trade date | 01 March 2023 |
| Value date | Wednesday, 01 March, 2023 |
| Maturity date | Sunday, 31 December 2023 |
| Contract Amount | 1,000 |
| Contract Currency | GBP |
| Counter Currency | USD |
| Option premium | 100 |
| Strike price | 1.2 |
| Current Spot Rate at the time of booking | 1.2 |
| Option Style | BINARY |
| Barrier type | UOKO ( Up and OUT Knock OUT ) |
| Expiration style | NA |
| Barrier | 1.5 |
| Fixed Amount to be paid | NA |
| Fixed Amount Currency | GBP |
| Earliest exercise date | NA |
| Barrier Monitoring Period | 01 March to 31 March |
If at any time during 01-Mar-2023 and 31-Mar-2023, the spot rate goes higher than 1.5 GBP/USD, this option gets knocked out and a rebate is paid by the seller of the option to buyer either on the knock out date or on maturity.
During the window period, if the barrier was never hit, the buyer of the option shall have the right to exercise it.
All the cases are applicable for EOD processing and Manual Knock In and Knock Out screen (OTDXKIKO).
Parent topic: Examples of Different Types of Exotic Currency Options