I had already posted a bonus certificate on Brent Crude Oil several weeks ago, which would have performed quite well if … Readmore…
Single Products and Markets
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Posts Tagged ‘double no touch’
Double Touch!
Wednesday, September 30th, 2009 by Andreas BlümkeUsually, the structure is called Double-No-Touch, in which an underlying asset has to stay within a predetermined range for the product to perform well, yielding a high coupon, for example. Well, as the volatility has fallen to below-average in several asset classes (in particular in stocks and FX) and the skew has largely returned to normal as well, I thought that a product with the reverse payoff would make sense.
6 months ago, I structured a Double-No-Touch for a client with 98% capital guarantee on 3 oil stocks. The structure would pay 98% + 6% if the 3 stocks stayed within the range (98% otherwise). The vol was high and the barriers could be placed at +/- 25% from spot.
Now this product matures within the next days and I thought about replacing it with a Double Touch! Still 98% capital guaranteed, 6 month maturity and with a payoff of 98% + 6% if one out of two stocks does break through a predefined range, 98% otherwise. For that, I need 2 stocks whose options trade with an implied vol below historical vol and where the vol is expected to increase. The stocks need to be relatively correlated, but the correlation should widen in the future. Due to the skew in the equity market, I would place the lower barrier further away from the spot than the upper one. Any idea about which 2 stocks would fit such a description?
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