Beruflich Dokumente
Kultur Dokumente
Objective
To understand Structured note market landscape, participants and their motivations.(Investors, Issuers) Design of a structured note and pricing of its components Analyzing price sensitivity to Volatility, skew, correlation etc Due diligence around potential risks and rewards for complex products, including security or strategy performance under both normal and extreme market conditions Payoff diagrams for various notes, understand characteristics of the underlying asset like reference level, volatility and early redemption Calculating credit or default risk arising from the issuer of the Note
Contents
Market Landscape Product Taxonomy Anatomy of a Structured Note Valuation building blocks Pricing-Risk properties Conclusion
Market Landscape
Year Issuance Volume US SEC registered Structured ( $ Billion) Note markets issuance by various 2009 44.5 issuers has been around 40-50 bn over 5 year period 2010 66.7 Investor base is made up of Retail 2011 64.2 and institutional investors 2012 57.54 Investors are attracted to this market due to flexibility in 2013 40.30 designing new customized products to meet their investment needs Issuers are able to fund their cash needs for their operations effectively Rise in understanding of Financial Engineering techniques and methods implicit in these products
Product Taxonomy
Structured note market place trades a wide variety of products. These products are based on variety of asset classes ( Equity, Interest Rate, Foreign Exchange, Inflation, Hybrid and Commodity) with variety of payoffs (Digital, Buffered, Best of, Worst of and so on). These notes typically classified as Note Type Capital Guaranteed Note Yield Enhancement Performance Leverage Common products Step up Callable notes Reverse Convertibles Super Trackers Leveraged Buffered Notes Risk Very Low risk Medium risk High risk High risk
Conclusion
Structured note market offers alternatives to harvest investment returns in the global financial markets Structured note products come in a variety of types with potential risks and rewards Structured note products should be understood by using advance option pricing tools and techniques.