Reverse convertibles have a nominal value, on which investors are paid an interest for each day they are holding the security. The interest paid does not depend on the current price of the reverse convertible. At the end of maturity, the issuer may choose to either deliver the number of underlying shares corresponding to the exercise ratio or pay out the nominal value of the reverse convertible. As a rule, this decision depends on the current price of the underlying.
In case of strong price losses of the underlying, the investor may not be paid the full nominal value at the end of maturity.
If the reverse convertible has a knock-in level, the issuer's choice is restricted. He may only deliver shares if the price of the underlying fell below the knock-in level at least once during the derivative's maturity.
Synonyms: face value, par value
More information on reverse convertibles.