Discount Certificates with Barrier: How they work

By adding a knock-in barrier to a discount certificate, the probability of maximum repayment is higher, as an investor receives the nominal value repayment if no barrier event has occurred during the term period. However, the amount of the discount is lower in direct comparison to a conventional discount certificate (without a barrier).

If the barrier is touched during the term, the discount certificate with barrier becomes a conventional discount certificate. Repayment then takes place in the same way as for a discount certificate without a barrier.

The question of whether a single or several underlyings should be favoured depends on the investor's risk profile. In principle, several underlyings also mean a higher risk, as in the negative case of a barrier being touched, the ‘worst-of’ underlying, i.e. the underlying with the worst performance, is delivered. At the same time, several underlyings also allow either a higher discount (rebate) or a lower barrier due to the higher risk.

Before investing in a discount certificate with a barrier, investors should ask themselves whether the volatility (fluctuation range) of the underlying asset is expected to rise or fall during the term of the product. In principle, falling volatility is favourable for discount certificates with a barrier, as the risk of a barrier event is lower with lower fluctuations.