Extended Accumulator

ORE defines the product as follows:

An Extended Accumulator is like an Accumulator with regular and conditional observation and settlement dates. After the regular observation dates a European barrier is applied on the Extension Decision Date. If the barrier is hit the trade terminates, otherwise the trade continues with cashflows generated on the conditional observation dates.

Source: ORE User Guide, Products catalogue, extendedaccumulator.tex.

An extended accumulator is a forward purchase program with a possible second life. The program buys a fixed amount of an asset on each observation date, at a fixed strike. On a set decision date the underlying is checked against a trigger. Above the trigger, the program extends into a second set of observation dates. At or below the trigger, the program stops after its regular dates.

The trade is a scripted trade: the trade type is ScriptedTrade and the node is ExtendedAccumulatorData. LongShort defines whether the trade is long or short. Long means the holder buys the underlying asset at each observation date; short means the holder sells it. Strike is the strike of the installments. For FX it is the amount in the domestic currency, CCY2, for one unit of the foreign currency, CCY1. For equity and commodity it is the value for one unit of the underlying, expressed in the domestic currency. Underlying names the underlying index. For FX it has the form FX-SOURCE-CCY1-CCY2, where SOURCE is the fixing source. FixingAmount is the amount accumulated at each fixing date. For FX it is expressed in the foreign currency. For equity it is the number of shares. For commodity it is the number of units. A negative amount turns a long trade into a short one. PayCurrency is the payout currency; for a non-quanto trade it is the domestic currency.

The schedule nodes define the two lives of the trade. ObservationDates and ObservationSettlementDates hold the regular observation dates and their settlement dates. ConditionalObservationDates and ConditionalSettlementDates hold the conditional dates, which pay only when the trade extends. ExtensionDecisionDate is the date on which the extension condition is decided. ExtensionTrigger is the level of the underlying below which a trigger event occurs; it is expressed in the same way as the strike. When the underlying on the decision date is above the trigger, the extension fires and the conditional dates pay. Otherwise the trade terminates at the last observation date.

ORE summarises the direction of the condition as follows:

If the underlying on the extension decision date is above the barrier level, it triggers the extension on conditional observation dates. Else, the trade terminate at last observation date.

Source: ORE User Guide, Products catalogue, extendedaccumulator.tex.

ORE states the payoff formula as follows:

PayOff = omega x FixingAmount x (K - X_A(T)), summed over the observation dates.

Here omega is 1 for a long position and minus 1 for a short position. FixingAmount is the fixing amount in currency or units of the underlying asset A. K is the strike. X_A(T) is the fixing value of the asset A at each observation date T. The script that implements the formula pays every regular installment first. It then tests the underlying on the extension decision date. When the underlying is above the trigger, it pays the conditional installments as well. The current notional of the trade is the fixing amount times the strike.

• The underlying price. Each fixing decides the sign and size of an installment.
• The volatility of the underlying. It drives how often the fixings fall on the profitable side of the strike.
• The strike and the trigger level.
• The interest rates that discount the installment payments.

The payoff of every installment is linear in the fixing. The extension condition adds a binary path dependence: the value of the conditional leg exists only when the trigger fires.

The regular installments settle on their own dates until the decision date. On that date the barrier is observed once, in the European style. Above the trigger, the conditional installments continue to their last settlement date. At or below the trigger, the program stops. The current notional of the trade steps with each fixing amount as installments accumulate.

An accumulator lets a customer accumulate a position in an asset at a fixed price over time, instead of buying it today. The extended form adds a conditional second phase. In ORE Studio a customer books extended accumulators to value them and run sensitivities on the ORE engine.

ORE's catalogue shows a long extended accumulator on EUR-USD. Six monthly installments run from September 2019, with the extension decision on 25 February 2020:

<Trade id="FxExtendedAccumulatorLong">
  <TradeType>ScriptedTrade</TradeType>
  <Envelope>
    <CounterParty>CPTY_A</CounterParty>
    <NettingSetId>CRIF_20191230</NettingSetId>
    <AdditionalFields/>
  </Envelope>
  <ExtendedAccumulatorData>
    <LongShort type="longShort">Long</LongShort>
    <FixingAmount type="number">840336</FixingAmount>
    <Strike type="number">1.19</Strike>
    <PayCurrency type="currency">USD</PayCurrency>
    <Underlying type="index">FX-ECB-EUR-USD</Underlying>
    <ObservationDates type="event">
      <ScheduleData>
        <Dates>
          <Dates>
            <Date>2019-09-30</Date>
            <Date>2019-10-31</Date>
            <Date>2019-11-28</Date>
            <Date>2019-12-31</Date>
            <Date>2020-01-30</Date>
            <Date>2020-02-27</Date>
          </Dates>
        </Dates>
      </ScheduleData>
    </ObservationDates>
    <ObservationSettlementDates type="event">
      <ScheduleData>
        <Dates>
          <Dates>
            <Date>2019-10-02</Date>
            <Date>2019-11-02</Date>
            <Date>2019-12-30</Date>
            <Date>2020-01-02</Date>
            <Date>2020-02-03</Date>
            <Date>2020-03-30</Date>
          </Dates>
        </Dates>
      </ScheduleData>
    </ObservationSettlementDates>
    <ExtensionDecisionDate type="event">2020-02-25</ExtensionDecisionDate>
    <ExtensionTrigger type="number">1.19</ExtensionTrigger>
    <ConditionalObservationDates type="event">
      <ScheduleData>
        <Dates>
          <Dates>
            <Date>2020-03-31</Date>
            <Date>2020-04-30</Date>
            <Date>2020-05-29</Date>
            <Date>2020-06-30</Date>
            <Date>2020-07-31</Date>
            <Date>2020-08-31</Date>
          </Dates>
        </Dates>
      </ScheduleData>
    </ConditionalObservationDates>
    <ConditionalSettlementDates type="event">
      <ScheduleData>
        <Dates>
          <Dates>
            <Date>2020-03-31</Date>
            <Date>2020-04-30</Date>
            <Date>2020-05-29</Date>
            <Date>2020-06-30</Date>
            <Date>2020-07-31</Date>
            <Date>2020-08-31</Date>
          </Dates>
        </Dates>
      </ScheduleData>
    </ConditionalSettlementDates>
  </ExtendedAccumulatorData>
</Trade>

Source: ORE User Guide, Products catalogue, extendedaccumulator.tex, the extended accumulator example trade.