Autocallable
Also known as: Autocall, Phoenix, Express certificate
The world's best-selling structured product: fat coupons while markets behave, a cliff if they don't.
- Asset class
- Equity structured products
- Instrument type
- Structured note with barriers
- Traded
- Issued by banks, sold via networks
- Typical users
- Yield-seeking retail/private-bank clients
BeginnerWhat is it, really?
An autocallable is a bank-issued note that pays an unusually high coupon — say 8% a year — as long as a stock or index doesn't fall too far. On scheduled observation dates (often yearly), if the underlying is at or above its starting level, the note "autocalls": you get your money back plus the coupon, and it's over.
The catch lives at the bottom: there is a barrier, typically 60–70% of the starting level. If the note survives to maturity and the underlying has fallen below the barrier, your capital takes the full loss of the underlying — down 45% means you get 55 back.
So the deal is: in flat, rising or mildly falling markets you collect handsome coupons; in a severe fall you own the crash. You are, without the paperwork saying so, selling crash insurance to the bank.
IntermediateHow it works in practice
Typical structure (Phoenix)
- Underlying: an index, a single stock, or — for higher coupons — the worst performer of several ("worst-of").
- Autocall trigger: 100% of initial level, checked periodically. Some step down over time, raising call probability.
- Coupon barrier: e.g. 70% — coupons paid (often with memory) if the underlying is above it on observation dates.
- Capital barrier: e.g. 60% at maturity (European barrier) — below it, redemption = underlying performance.
Where the yield comes from
The investor is short a down-and-in put and receives its premium as coupon, plus (in worst-of notes) a premium for selling correlation — the risk that any one of several names crashes. Higher volatility, lower correlation, more names, lower barriers → bigger coupons.
Lifecycle reality
Most autocalls call early — often at the first observation — which is why issuance is continuous: redeemed money rolls into new notes. The pain scenario is a market that grinds below the trigger but above the barrier for years (no coupons, no call, capital locked), or a crash through the barrier near maturity.
AdvancedPricing & valuation
Pricing: no closed form, simulate
The autocall's value is the risk-neutral expectation of its path-dependent cash flows — call events, coupons, barrier breach — discounted on the funding curve:
evaluated by Monte Carlo under a model calibrated to the whole volatility surface — local vol as baseline, local-stochastic vol (LSV) where forward-skew matters (it does: the down-and-in put is a forward-skew instrument). Worst-of notes additionally require a correlation model across underlyings.
The issuer's hedge book
Selling autocalls leaves dealers structurally long forward skew, long dividends, short vega convexity, with Greeks that flip sign as spot approaches triggers and barriers. Near a barrier, gamma and vega change violently ("barrier risk"), and hedging flows from the street's aggregate autocall book measurably move underlying markets (the famous feedback in Korean/European indices and, more recently, US single names).
Sensitivities that matter
- Skew: steeper skew raises the value of the embedded put → richer coupons.
- Dividends: issuers are long future dividends; hedged via dividend futures.
- Correlation (worst-of): dealers are short it; correlation spikes in crashes exactly when barriers approach — wrong-way everything.