The UK structured product market always has a large representation of Autocall products, typically making up around 80% of issuances. Of these, many are income Autocalls which pay coupons at regular intervals if the underlying(s) are above the required coupon barrier. These products also have Autocall opportunities throughout its life at which point the products and associated income will stop.

A good Autocall example is a FTSE-100 and Eurostoxx-50 linked product issued last year (MB Structured Investments UK/Europe 6Y Monthly 80 Income Kick Out Y2 65, August 2025). It has a maximum maturity of six years, with annual Autocall opportunities from year two. The first Autocall level is at 105% of the starting level and since the product is a worst-of both underlyings are required to be above this level. Subsequent Autocall levels are at 100% and income of 0.62% per month is paid if both indices are above 80% at each coupon determination date.

Performance Since Issuance and Changes in Autocall Probabilities

By January 2026,indices were up by approximately 10% from the strike date and the fair value of the product has increased by about 2.4% from the valuation at strike date, and additionally about 2.4% has been paid in income since the product started.

The biggest change in price and prospects of the product comes from changes to Autocall probabilities which can be seen below:

As both indices have risen significantly, we would expect the probability on the first call date to have increased, particularly since the level required was higher than the initial levels but is now “in-the-money” as both indices stand at 110%. The probability of successful later Autocalls has decreased, this is mostly because of the higher chance of a first time call. Later Autocalls provide higher outcomes if they are successfully achieved and although they have the same simple annualised return, they also have much higher overall product payoff values, even allowing for discounting by interest rates and credit spreads. Although, it may appear that the product is significantly better placed when indices rise, the change in price is relatively modest. This implies a delta of only approximately 50% once the income paid is taken into account.

Behaviour of Autocalls Across Maturities and the Role of Volatility Modelling

Autocalls provide much higher headline yields than capital-at-risk reverse convertible or digital because these products tend to last a relatively short time in a good scenario but will always go to the full maturity for the two bad scenarios capital return only and capital loss. Generally, the first and last maturities are most likely and this can be seen from the table above for the first opportunity (57%) or going through until final maturity (24%).

From a technical point of view, Autocall pricing is known to be complex because of the multi-maturity nature of the product. In Equity markets, volatility modelling is critical, the two main techhniques used in the market are stochastic or local volatility models. These approaches are fundamentally different in how they tackle the phenomenon of volatility showing a significant variation by option strike.

The presence of skew increases the probability of Autocall events happening compared to a flat volatility surface at the same at-the-money level. This is because requiring underlyings to be above a given level can be thought of as a highly geared narrow call spread. For such a call spread, the higher strike short option is priced at a lower volatility in the presence of volatility skew. As a result, the call spread value is significantly higher, implying a higher probability of Autocall.

High volatility skew also increases the value of the final maturity put option by which capital is at risk. Since this is a short position from the investor’s viewpoint volatility skew decreases the product’s value. Therefore, high skew increases the likelihood of call events but decreases the final product value if it goes through to maturity. This underlines the need for volatility behaviour to be carefully modelled to obtain an accurate fair value.

Key Risk Factors and Hedging Considerations

When trading Autocalls, it is essential to capture all the risk factors. The principal ones are the underlying levels and delta exposure, volatility curves and correlations. Sensitivity to Autocall dates and the final barrier level are the most critical points from a hedging perspective, so it is important to take account of the gap risk of the underlying suddenly going through the Autocall or barrier level resulting in a sudden change in the product’s outcome and value.

For this Autocall product, income is paid during the product lifetime if both indices are above the coupon barrier level. This also creates hedging issues since the value of each income payment changes with the probability of the payment happening. Since there are many income payments expected, this is still a significant part of the product’s pricing and hedging.

As this Autocall passes through time, the value also changes as the prospects of the product changes and the likelihood of calling or income payments changes. Risk is always accentuated for a close Autocall event or approaching a final barrier and such issues are important for successful issuance and trading.

This article was generated from data coming from the SRP Greeks application, a service which provides aggregate Greeks data on important underlyings in structured product markets. The product set is taken from the SRP database and all calculations and analytics are powered by FVC. For more information contact www.structuredretailproducts.com.