# Tag Info

4

The paper is generally correct, but it is not a general statement, as in a general truth of options hedging in a theoretical context, rather a statement regarding how the structured derivs market is typically set up: retail and institutional investors buy a large number of products that at their core entail the dealer buying (from the investor) long-dated (...

3

The payoff: you are missing one point. It's not only about the upside, it's also about the downside. Your performance $P_T$ at maturity $T$ (the Final Valuation Date) is basically: $$P_T=P_0\left(1+1_{\left\{\max_{0\leq t\leq T}\left|\frac{I_t}{I_0}-1\right|\leq B\right\}}\left|\frac{I_T}{I_0}-1\right|\right)$$ where $P_0$ is your Principal Amount (your ...

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You generally can’t. There aren’t enough suppliers. Therefore you end up living with it , which means that the correlation between US swap rates and USDJPY Fx can get very high since many dealers have it.

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If a structured product trader can directly hedge in the market, he will usually do it. Here your example is a little too simplified, many structured products have features that cannot be easily hedged in the market because they are path dependant (barriers), or illiquid (typically a 5 years 60% put on a single stock). Let's take your product, but imagine ...

3

To add to the above on a more practical note: In general, SP desks make money on the individual product when the underlying declines. Dividends make the underlying decline, hence they are naturally long dividends. Take an auto-callable product which is exercised if the spot is above a pre-determined strike each year and say the SP desk sells this ...

2

What you seem to be missing is $$\sum_{i,j} w_i w_j \sigma_i \sigma_j = \left(\sum_i w_i\sigma_i\right)^2$$ Now apply Jensen's inequality to get $$\left(\sum_i w_i\sigma_i\right)^2 \leq \sum_i w_i\sigma_i^2$$ QED (note that nonnegative weights is a crucial assumption here)

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Exotic Options and Hybrids: A Guide to Structuring, Pricing and Trading, Wiley, 2010. https://www.amazon.co.uk/dp/B003F8S7B8/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 was quite interesting, and I think you can probably find it on the web somewhere.

2

My understanding of a "geared put structure" is that it is a bought ATM put option on a stock, whereby the ATM put-option buyer sells (at the same time) some OTM puts. The number of OTM puts sold is greater than the ATM puts, to make the pay-off function decrease to zero linearly. The structure buyer owns the underlying stock and buys the structure ...

1

For "Classic Autocall" or "Athena", the coupons are indeed accumulated and paid on the event of autocall, either pre-maturity or at maturity (but for the later it will not be called autocall). So only one barrier level (without considering the down-and-in put), the one of the autocall, or we could say the autocall barrier and coupon ...

1

"Applied Quantitative Finance for Equity Derivatives" by Jherek Healy might be of interest to you though it's not focused specifically on exotics. The sellside (especially French banks) should have primers on exotics though given they're effectively sales pitches, they might not have the detail you're looking for.

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Since other answers already mentioned Das vol 1 and vol 2 ; and Bouzoubaa and Osseiran, I would like to add the good old: Harry Kat. Structured Equity Derivatives: The Definitive Guide to Exotic Options and Structured Notes. Wiley (2001) (not a very deep discussion of pricing, but good explanation of the product). Marcus Overhaus, Ana Bermudez, Hans ...

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Satyajit Das Structured Products Volume 1: Exotic Options; Interest Rates and Currency (The Das Swaps and Financial Derivatives Library) to volume 3

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If you could predict the exact MTM of futures contracts them, you could make a lot of money! ;-) However, you could make an aggregate estimate by looking at the historical volatility of the contract.

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In the simplest case, he books the structured product as a sale of the call at 5, he then enters the market and buys a call at 3, so he pockets 2 on the trade.

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Point of clarification : are you asking about required returns in pounds sterling for projects conducted in the UK? If so, you also need to adjust for any difference in risk free interest rates between Euro and UK. You can do this be comparing 5yr UK gilt yields with 5year German govt bond yields , for example. I believe the UK yields are higher, so you ...

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It depends. Is the project being carried in the original place or moving to the UK? If the project keeps being in the original place (i.e. euro zone) and you want the IRR in GBP, then you need somehow to factor in the currency fluctuation for the cash-flows. That can be done either through adjusting the cash-flows with an expected exchange rate or by ...

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Just to add a remark on top of Ivan’s excellent answer, note that the core reason IB package those KI puts in the autocallables and other SP for investors is not just in order to make the coupons more attractive to the investors but fundamentally to buy back the volatility skew that the vanilla desk is structurally seller of.

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In your example, the buyer of the PRDC security is a Yen-based investor who gets long the BRL on a forward basis, on each coupon date and on the final maturity date. Because BRL is a lot cheaper forward than spot, the investor gets a high coupon for taking this risk. You can think of the risk taken by the investor in 2 ways, either (a) long the BRL forward ...

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I am not aware of global figures. But for the European market for structured products, you can have a look at www.eusipa.org. They aggregate the national figures, including the German ones that you probably found on www.derivateverband.de.

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