Identifier: C6T5L3 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Decision: Reconstruct every observation and cash date; final price alone cannot resolve a path-dependent right. Objectives: Translate four contingent term sheets into cash; Compare path and final-observation data; Reject an incomplete exotic valuation. Prerequisite: C6T5L2.

All numerical offers, rates, prices, account chains, fees and contract parameters below are hypothetical, unless a primary document is expressly identified. They are not current executable offers or evidence that a Turkey-resident investor can access them. The assumed investor is a Turkey-resident individual outside a business, with no assumed US citizenship or tax residence; actual classification must be checked. Results are before actual tax unless a fictional tax schedule is explicitly supplied. No account, deposit or trade is required.

Mechanics

A barrier claim changes when a monitored level is reached. An Asian option uses an average of specified observations. A digital pays a fixed amount if its condition holds. An autocallable can end early on an observation condition. These are families, not universal formulas, and each may be embedded in issuer debt. Identify the legal provider, currency, monitoring schedule, settlement date and rights before discussing a model price.

Price and return drivers

Final price alone cannot resolve a path condition or an average. Specify touch versus breach, equality, observation hours, weights, missing dates and disruption rules. A digital can jump from zero to full payment at its boundary, so a local sensitivity extrapolation can fail. For an autocall, preserve each possible cash date; a short early payout and a larger later payout are different reinvestment exposures. Conditional coupons must not be treated as unconditional interest.

Worked case

Four separate synthetic USD claims mature after 90 days under fictional issuer Meridian’s performance. Barrier call: strike 100, 100 units, lower touch barrier 80, zero residual, premium 600, costs 20. An untouched path ending 120 pays 2000, net 1380; a touch then recovery pays zero, net −620. Asian call: strike 100, 100 units, equal fixes 90/110/130, average 110; payoff 1000, premium 500, costs 20, net 480. Digital: pays 1000 if final price is at least 110; purchase 400, costs 20. Autocall: purchase 10000, costs 20; day-30 price at least 105 pays 10200 and ends the claim; otherwise day 90 pays 10600 at price at least 100, or 10000 × final price/100 below 100.

Adverse case

Digital final prices 109.99, 110 and 120 give net −420, +580 and +580. Autocall paths give: day-30 trigger, net 180 at day 30; no early trigger and final 100, net 580 at day 90; no early trigger and final 70, net −3020 at day 90. For the Asian, earlier fixes 70/80 followed by the same final 130 average 93.3333 and pay zero. A final chart point cannot distinguish those paths. Before resolution, conditional model value and an issuer exit quote can differ; the formulas are not guaranteed interim bids. An unbreached barrier path ending at 100 pays zero, net −620. For the same Asian call, fixes 90/100/110 average 100 and give zero payoff, net −520; this supplies a third path alongside the stated averages 110 and 93.3333.

Practical use

Obtain every observation, calculation-agent, call and disruption provision from the confirmation or prospectus. Verify the actual offering and investor permission. The SEC source supports a US risk comparison, not Turkish access, protection or tax treatment. A synthetic term sheet is not evidence that this exact claim exists locally. Include the quoted spread, commission, funding, custody, conversion and exit charges applicable to the actual route. Check investor residence/status, acquisition and income dates, effective tax rules and treaty scope before applying any actual tax; these cases remain before actual tax.

Decision boundaries

Decline a barrier or autocall comparison that supplies only final-price scenarios. Prefer a plain option or matched debt when the additional condition does not serve the objective. Even a reproducible payoff retains credit and execution risks. Never infer principal protection from a bonus, coupon or early-call label.

Practice and references

Exercise: Asian put strike 100, 50 units, equal fixes 80/100/120, premium 150, costs 10. Solution: average 100, payoff zero, net −160. With fixes 70/80/90, average 80, payoff 1000, net 840. Observation weights and dates are essential inputs, not optional detail.

Takeaway: Reconstruct every observation and cash date; final price alone cannot resolve a path-dependent right. References: product card, formula; glossary: Asian option; Digital option; Autocallable; Path observation. Next: C6T5L4. Topic test.

Sources: GIB: Investment Income Guide (retrieved 2026-10-26; Introduction and foreign income/reporting framework). CFTC: Swaps Report Data Dictionary (retrieved 2026-10-26; Credit Products: CDS premium, reference entity and contingent payment). SEC: Structured Notes Investor Bulletin (retrieved 2026-10-26; Contingent features, issuer risk and early exit). Revision: 2026-10-26; recheck changeable rules before publication.

Shared reference guide