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General FpML Discussion › Technical & Implementation Questions › FX One Touch w/ KO until Expiry/OT

Viewing 7 posts - 1 through 7 (of 7 total)
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  • January 31, 2011 at 4:22 am #1871
    peledg
    Member

    Hi, One Touch with Knock Out can be easily represented using: – FpML Message body same as One Touch – KO barrier element (fxBarrier) Prblem is that the KO barrier can have 2 different behaviors: a. KO trigger is live until Expiry. b. KO trigger is live until the One Touch trigger is hit. Is there a way in FpML to represent these 2 behavior? Thanks, Guy

    January 31, 2011 at 3:07 pm #1872
    iyermakova
    Spectator

    Knockout – an fx barrier type when triggered causes an option ceased to exist. The trigger rate is out of the money in relationship to the strike rate. I believe your points can be represented in FpML with FX Option model, by providing spot rate, fx barrier (FxBarrierTypeEnum where you specify “knockin”) and trigger payout. a. KO trigger is live until Expiry – The option will stay “Knock Out” until its expiry, or b. KO trigger is live until the One Touch trigger is hit. – until the trigger reaches a pre-set barrier price, in which case the option will be knocked-in Take also a look at FX example 12 “FX OTC Barrier Option” and 13 “FX OTC Double Barrier Option” Let me know if I answered your question. Regards, Irina Yermakova

    February 1, 2011 at 3:56 am #1873
    peledg
    Member

    Thanks for the quick reply Irina. Problem is I’m trying to represent the deal when it is created. I.e. when traded, the deal can be “flagged” with either ‘a'(KO until expiry) or ‘b'(KO until One Touch). I am lookig for some kind of element/s that will represent this “flag” at trade date.

    February 1, 2011 at 10:37 am #1874
    iyermakova
    Spectator

    Guy, Could you send us an example of the deal for better understanding. I dont think there is a way to model in FpML the knock out trigger time (i.e., until expiry). However, tn FpML, fx option model covers the cases, when an option is a barrier type – knockout, for example, touches the trigger and the option is knocked out (no longer exists) or when the option reaches expiry then it is ” knocked out ” (no longer exists) as well. Thank you, Irina Yermakova

    February 2, 2011 at 3:33 am #1875
    peledg
    Member

    Thanks Irina. I also don’t think there is a way to represent this flag. If you’re interested here are examples. Currency Pair: EURUSD OT Trigger: 1.5 KO Trigger 1.1 Expiry: 2aug11 Delivery: 4aug11 Payout: EUR 100k 2 possibilities: a. KO condition: KO until Expiry. I.e. If EURUSD spot hits 1.1 at any point up until expiry (2aug11) then option is terminated and there is no payout at delivery (even if OT Trigger was hit prior to KO). b. KO condition: KO until One Touch. I.e. KO trigger is american as in ‘a’, and is live until expiry unless EURUSD spot hits 1.5 at any point up until expiry. KO trigger is canceled as soon as EURUSD hits 1.5 and payout is secured (to be paid on delivery date).

    February 3, 2011 at 1:55 pm #1877
    iyermakova
    Spectator

    Hello Guy, Thank you for the deal example. I showed your example to a couple of people and we agree that the example: (a) looks like a barrier (knock out) option, but that there is also a one-touch element to it (a payoff of 100K EUR if the rate hits 1.5) (b) looks like digital with a barrier option (knock out) component. And so, you can NOT use FpML fx option products directly, but you could try to represent your deal with extensions. For example, create a OneTouchWithKoOption product similar to fxDigitalOption product (as you would not be able to extend FxDigitalOption type to include your KO trigger as an american style’s). Touch trigger would be activated, in your example, at any point up until expiry when 1.5 is hit and payout is secured at delivery). Knockout trigger would be activated, in your example, at any point up until expiry when 1.1 is hit which would terminates the option and there is no payout at delivery. If you think FxOption fits better, you can create a product similar to FxOption adding the missing components to it. Regards, Irina Yermakova

    February 6, 2011 at 8:32 am #1878
    peledg
    Member

    Thanks for the support Irina. Because both the OT trigger and KO triggers are American there is no way to represent the (b) scenario in pure FpML. Only (a) is supported. My intention is to represent this in the following way: Product: fxOneTouchWithKO – FpML Message body same as fxDigitalOption – FpML KO barrier element (fxBarrier) – XML extention (outside of FpML): KO trigger flag called KOUntil where possible values are: > Expiration (a) > One Touch (b) Thanks again for assisting. Guy

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