At the start of the term the strike price of the underlying is set. On the following annual valuation dates there is a check of the current price of the underlying. If the underlying is at or above the strike price on the valuation date, the express bond is redeemed early at 100 % of the nominal amount and interest is paid. If the underlying quotes below the strike price, the bond is not redeemed. Also, there is no interest payment. The following year the underlying price is again checked on the valuation date.
If there is no early redemption during the term, the barrier serves as additional risk buffer on the final valuation date. If the closing price of the underlying on the final valuation date is at or above the barrier, then the redemption is at 100 % of the nominal amount. In addition, missed coupons are paid. If the closing price of the underlying is below the barrier, there is no interest payment and redemption is according to the performance of the underlying. In this case, capital loss up to total loss of invested capital is possible.
Besides this standard express bond, there are variations that may differ from the above description. There are memory express bonds, fix coupon express bonds and multi express bonds, the latter refering to several underlyings. In case of multi express bonds, (early) redemption and coupon payment depend on the performance of all underlyings, i.e. all underlyings must be at or above the respective barrier / strike price on the valuation dates. In addition, express bonds may have an "airbag" function, which serves as additional protection upon maturity, reducing potential capital loss.
Fix coupon express bonds pay the coupon regardless of the performance of the underlying. Memory express bonds offer the chance of a coupon payment even though there is no early redemption. This is the case if the underlying is below the strike price but at or above the coupon barrier. In case the underlying price is below the coupon barrier, there is no coupon payment. However, the missed coupon is paid if the underlying price is at or above the coupon barrier on one of the following valuation dates (= memory function).