A knock-in CMS cap is similar to a Knock-in Cap , the only difference being that instead of the floating rate being based on a reference rate (such as LIBOR), it is based on a long-term swap rate, i.e., the CMS index.
As in the knock-in cap, the knock-in barrier must be set higher than the strike. This means that each underlying caplet is only activated (or knocked-in) for a payment period if the CMS index is above the specified barrier on the relevant fixing date. If the barrier is not hit on a payment period's fixing date, the underlying caplet is not activated and there is no payout for that period.
A knock-in CMS cap may be useful when you need protection against a rise in the swap rate and the yield curve is relatively flat. In this situation, by taking a view against the forward curve a hedger can reduce the premium while enjoying the maximum protection in case of a rapid increase in long term rates.
Because the underlying cap is only knocked-in when the swap rate is higher than the barrier, the premium is less than that of the equivalent CMS cap with the same strike.