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
Weblog about specific products and market opportunities
Posts Tagged ‘SMI’
Improved Participation on Capital Guarantee
Wednesday, December 16th, 2009 by Andreas BlümkeFollowing on previous blogs on capital guaranteed products, here’s a way to increase the participation without capping or otherwise complicating the product. As an example, let’s take the Swiss Market Index, SMI. It’s still possible to construct a product with 9 months maturity that would be guaranteed to 90% with a strike set at 90% of spot and an 80% participation, the whole in CHF. Now for those investors who think that a participation of 80% is still too low, one could replace the SMI index by a basket composed of 5 stocks that are included in the index, but which have a poor historical correlation. That will lower the price of the embedded call substantially and increase the participation without capping the product. In order to avoid concentrating the risk , each stock should belong to a different sector (i.e. one pharma, one consumer staples, one financial etc.) and each stock should have an equivalent weight. With this method, it’s possible to increase the participation to over 100%. Et voilà.
Short term capital guarantee in CHF
Tuesday, October 20th, 2009 by Andreas BlümkeQuite satisfied with the structuring of the capital guaranteed product in EUR on the Eurostoxx50 Index of my previous blog, I structured a similar product in CHF on the SMI index. To my surprise, the conditions were similar! For a 9-month maturity, with 90% capital guarantee and a strike placed at 90% of spot, I got around 80% participation. Quite attractive, in my view; even if the market doesn’t move at all (flat performance over 9 months), I lose only 2%. Of course, if the market loses 10%, I also lose 10%, but my losses are limited to that amount. If the SMI drops by, say 25%, my loss remains at 10%. However, if the index climbs 20%, I make 14%, if it climbs 30%, I make 22% and so on. This seems like a good way to limit losses and to keep the upside potential open.
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