Payout Scenarios
Scenario 1: No knock-in and knock-out
What does this scenario mean?
At each knock-in/knock-out observation point during the product's operation, the price of the underlying asset has not exceeded the knock-out price nor fallen below the knock-in price. In this case, investors can receive all the coupon payments. In the diagram below, for each knock-in/knock-out observation point within the 6-month period, there have been no knock-in or knock-out events for BTC, and investors receive full repayment of the principal and coupon. As there have been no knock-ins, investors can receive coupon payments for the entire 6 months at a rate of 2% per month, resulting in a total absolute return of 12%.
Scenario 2: Knock-out
What does this scenario mean?
On one of the knock-out observation days during the product's operation, if the price of the underlying asset is higher than the knock-out price, the product is knocked out and ends. Coupon payments are only made on monthly observation days where the closing price is higher than the knock-in price, and not on days where the closing price is lower. In the diagram below, on the knock-out observation day in the fourth month, the price of BTC is higher than the knock-out price, resulting in the product being knocked out. As there have been no knock-ins, investors can receive coupon payments for 4 months, at a rate of 2% per month, resulting in a total absolute return of 8%.
Scenario 3: No knock-out after knock-in; the expiration price is lower than the initial price
What does this scenario mean?
On one of the knock-in observation days during the product's operation, if the price of the underlying asset is lower than the knock-in price and the final maturity price is lower than the initial price, the knock-in event occurs. In the diagram below, BTC experiences a price lower than the knock-in price during the product's duration. At the product's maturity, investors bear the loss from the decline in the underlying asset. Based on this, for the 4 monthly observation days where the closing price did not fall below the knock-in price, investors receive 4 coupon payments, resulting in a total of 4 months of coupon interest at a rate of 2% per month, yielding a total absolute return of 8%.
Scenario 4: No knock-out after knock-in, the expiration price is higher than the initial price
What does this scenario mean?
Investors do not need to bear any losses and can receive a 10% (2%*5) interest payment for the months that the knock-in event does not occur. Of the six observation dates, if the underlying asset's price is above the knock-in price for five of the observation dates, the investor will receive five interest payments. For instance, if an investor were to invest $10,000 in this product, they could expect to receive a total of $11,000 in principal and interest over five months in this scenario.
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