Payout Scenarios
Last updated
Last updated
Investors should be familiar with the five revenue scenarios of VETA snowball with floor. The diagram below illustrates the different characteristics of these five scenarios. See Glossary of Terms for the exact meaning of the terms in each diagram.
In the following analysis of revenue scenarios, assuming the example snowball with floor product is:
Initial principal:$10,000
Term: 6 months
Monthly knock-out observation, real-time knock-in observation
Underlying asset: BTC
Floor rate: 90%
Coupon rate: 10% (annualized)
Scenario 1: No knock-in and knock-out
Scenario 4: No knock-out after knock-in, the expiration price is lower than the initial price(lower than floor price)Scenario 5: No knock-out after knock-in, the expiration price is higher than the initial price
What does this scenario mean?
On each observation day during the product's operation, the price of the underlying asset has not exceeded the knock-out price or fallen below the knock-in price. In the diagram below, for each knock-in/knock-out observation day 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.
Investor's return:
Coupon interest = $10,000*10%*6/12 = $500（6 months）
Remaining principal = $10,000
Total return = $10,000+$500 = $10,500（6 months）
Rate of return = 5%（6-month absolute return）
What does this scenario mean?
On one of the knock-out observation days during the product's operation, the price of the underlying asset exceeds the knock-out price. In the diagram below, on the knock-out observation day in the fourth month, the price of BTC exceeds the knock-out price, resulting in the product being knocked out, and investors receive full repayment of the principal and coupon.
Investor's return:
Coupon interest = $10,000*10%*4/12 = $333（6 months）
Remaining principal = $10,000
Total return = $10,000+$333 = $10,333（6 months）
Rate of return = 3.3%（4-month absolute return）
What does this scenario mean?
On one of the knock-in observation days during the product's operation, the price of the underlying asset is lower than the knock-in price, and the final maturity price is also lower than the initial price but higher than the floor price. In this case, investors bear the loss due to the decline in the underlying asset. In the diagram below, BTC experiences a price below the knock-in price during the product's duration. At the product's maturity, investors need to bear the loss due to the decline in the underlying asset, but since it does not breach the floor rate, the floor clause does not come into effect.
Investor's return (assuming a 5% loss in the underlying asset):
Coupon interest = $0（6 months）
Remaining principal = $9,500
Total return = $9,500（6 months）
Rate of return = -5%（6-month absolute return）
What does this scenario mean?
On one of the knock-in observation days during the product's operation, the price of the underlying asset is lower than the knock-in price, and the final maturity price is also lower than the initial price and lower than the floor price. In this case, investors bear the loss due to the decline in the underlying asset but limited to 1 - floor rate. In the diagram below, BTC experiences a price below the knock-in price during the product's duration. At the product's maturity, investors need to bear the loss due to the decline in the underlying asset, and since it breaches the floor rate, the floor clause comes into effect.
Investor's return (assuming a 20% loss in the underlying asset):
Coupon interest = $0（6 months）
Remaining principal = $9,000
Total return = $9,000（6 months）
Rate of return = -10%（6-month absolute return）
What does this scenario mean?
On one of the knock-in observation days during the product's operation, the price of the underlying asset is lower than the knock-in price, but the final maturity price is higher than the initial price. In this case, investors receive the full return of their principal, but there is no coupon interest earned. In the diagram below, BTC experiences a price below the knock-in price during the product's duration. At the product's maturity, investors still do not incur any losses, but they also do not receive any coupon interest.
Investor's return :
Coupon interest = $0（6 months）
Remaining principal = $10,000
Total return = $10000（6 months）
Rate of return = 0%（6-month absolute return）
