I'm pretty new in structured products area and I have some basics questions regarding autocall :

  • Why the autocall has an automatic redemption feature ? I mean an Investor could be interested in earnings coupons during more time if they are attractive. What is the purpose of this calling mechanism ? same question for the bank ?
  • Why the calling mechanism should be linked to the underlying level ? How the callable level is calibrated ?
  • Could we really consider that the bank is short digital to materialize the calling feature ? Because if the bank is short, that means that it takes the risk to pay 1 * coupon in case the product redeem whereas it has already the coupon in its book (coming from the investment of the D&I option) as a hedge (no risk there)

Sorry if these questions are obvious

Thanks, Emilio

  • $\begingroup$ The buyer wants to collect big coupons, the seller wants protection against the price of a commodity going down. If the price of the commodity goes up a lot, usually the seller does not need protection any more, or if they do they want to negotiate a new deal with a new protection level (and new price) and get out of the old deal. Hence the automatic redemption. $\endgroup$
    – nbbo2
    Mar 31, 2022 at 18:49


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Browse other questions tagged or ask your own question.