active investment instruments
Different to passive investment instruments, these instruments are actively managed. This means that the composition of the instrument can change, for example as a result of the active input by a fund manager.
The allocation rate specifies the number of units of the underlying which can be obtained or sold through the structured product or the option. The allocation rate is equivalent to the reciprocal value of the ratio.
The exercise right of an American option, unlike with a European-style option, can be exercised at any time during the term of the option, up to the expiry date of the option.
The Autorité des Marchés Financiers (AMF) regulates participants and product in France’s financial markets.
Arbitrage is a transaction, which enables the realization of a riskless profit. This is possible, for example, by taking advantage of profitable opportunities in different markets arising from differential price anomalies.
An Asian option is a path-dependent exotic option. Payoff at expiry depends on the price of the underlying on predetermined observation dates and is usually based on the average price of the underlying over a certain period.
The ask price states the selling price from the point of view of the market maker. It is equivalent to the price at which the investor can purchase the security.
The aim of asset allocation is the optimization of risk and return of a portfolio. Asset allocation is the term used to describe the distribution of principal across different asset classes (shares, bonds, Structured Products, foreign exchange, real estate, etc.).
Asset backed securities (ABS) are a type of security typically issued by a special purpose vehicle (SPV) where the security is backed by an under- lying pool of assets.
This is a binary or digital option. If the price of the underlying is above the barrier, the investor receives delivery of the underlying. Otherwise, a total loss is incurred.
An option or warrant is at-the-money, when the current price of the underlying is approximately equal to the strike price.
An auction rate security (ARS) is a long-term debt issue with a variable interest rate. The interest rate level is reset at regular auctions (e.g. every 30 days). ARS are primarily used in the USA for financing companies.
average buy value
This represents the mean value over one day of the volume purchased by the issuers or the market makers.
average buy volume
This represents the mean volume over one day of the products purchased by the issuers or the market makers.
average sell value
This represents the mean value over one day of the volume sold by the issuers or the market makers.
average sell volume
This represents the mean volume over one day of the products sold by the issuers or the market makers.
Backtesting allows observation of the potential performance of a Structured Product during maturity on the basis of historical data.
Backwardation describes the price situation for forward transactions where those with a longer term are priced lower than those with a shorter term. By closing the initial shorter-term contract and opening a new longer-term contract for the same underlying asset, so-called rolling profits are obtained.
The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) supervises banks, financial services providers, insurance undertakings and securities trading in Germany.
The barrier is equivalent to the price of the underlying where the payoff diagram changes, when the price of the underlying touches, exceeds or falls below it. The breach of the threshold value of the barrier of an underlying leads to a change in the payoff conditions of the Structured Product. If the price of the underlying remains above the barrier, the investor receives a minimum payment.
When a predefined barrier is breached, the payoff construction of a product changes. The conditional capital protection or the possibility to participate in falling prices is forfeited.
barrier hit probability
The barrier hit probability measures the likelihood that the barrier of a product is either touched or breached within a defined period of time. Normally, the specified periods of time are the next 10 days or the remaining time to maturity.
Barrier options are products whose option right is activated or expires, when the price of the underlying exceeds or falls below predetermined barriers.
Basis is the variation between the credit rating of a company/government on the bond market on the one hand and the credit derivatives market on the other. In theory, the basis should be zero. Some Structured Products are based on a potential difference.
A basket is made up of a number of individual investment assets. Nor- mally, a basket contains products from the same sector. In the case of Structured Products, mostly Tracker Certificates are based on predefined share baskets (baskets).
A basket option is a type of option, whose payoff depends on a number of underlyings.
On the stock exchange, the bear is a symbol for falling prices. In the same way as a bust, the bear market describes a fall in prices over an extended period of time. Opposite: bull market.
bear market rally
A bear market rally is a period in which prices of shares increase significantly during a generally weak market environment.
A bear spread is an option, which allows leveraged participation in a slightly falling price of the underlying.
This represents a tracker certificate which benefits from falling prices of the underlying.
To enter into a bear investment (or a short investment) means to invest on the basis of a falling price of the underlying. Tracker Certificates, for example, may be marked with the addendum "bear", while Mini-Futures are marked with "short".
A benchmark is a reference or comparison value that is used to measure the success or other of an investment.
A Structured Product can be sold at the current bid price.
This is the difference between the selling price and the buying price. The level of the bid-ask spread depends on the liquidity of the underlying asset and the underlying volatility. On the other hand, however, the influence of the quality of the market maker on the spread is not to be underestimated. If market making is neglected, the following can often result: i) a spread which is too high, ii) insufficient volume or even the absence of bid-ask prices.
This represents an exotic option in which the payoff is a fixed amount if the price of the underlying closes at expiry above or below the strike price.
The binominal model evaluates options using replications. Hereby, a portfolio is composed of the underlying and a risk-free investment which, at any point in time, generates exactly the same payoff as the option itself.
The Black-Scholes model is one of the first and best-known models for the calculation of fair option prices. In 1997, Myron Scholes and Robert C. Merton were awarded the Nobel Prize for Economics for the development of this model. At that time, Fisher Black had already passed away. In the meantime, many experts have continued to develop the original Black-Scholes model.
A bond is a certificate of debt and is used by the issuer (government, company) as long-term debt financing. The bond is offered in the form of units and is securitized. The buyer of a bond (bondholder) is entitled to redemption of the amount borrowed and to an agreed interest payment.
The bond floor is the value of the interest-bearing component (bond component) of a Structured Product. It particularly applies to the taxation method in certain markets.
The break-even (point) denotes the market price to which the underlying of a warrant must rise for the investor to avoid loss at expiry. As most investors do not hold warrants until expiry but rather wish to sell them prematurely at a profit, the break-even is insignificant.
This is a fee charged by a stockbroker for services such as the sale or purchase of securities.
The bull market (or boom) describes a rise in prices over an extended period of time.
A bull spread is an option strategy which allows leveraged participation in a slightly rising price of the underlying.
To enter into a bull investment (or a long investment) means to investment on the basis of a rising price of the underlying. Tracker Certificates, for example, may be marked with the addendum "bull", while Mini-Futures are marked with "long".
This is purely and simply an option strategy where the investor benefits from a sideways trend of prices.
A call option contains the right, but not the obligation, to buy a certain amount of a specified underlying at a specified price (strike price). The purchase can take place on a specific date (European option), within a specific time period (American option), or on specific dates (Bermuda option). Rising prices of the underlying result in an increase in value of the option right and, therefore, of the option. The holder of the call bene- fits from price increases of the underlying.
Some Structured Products are equipped with a cap. On the one hand, the cap limits the investor’s profit potential, but on the other, it allows more attractive conditions with a sideways trend of prices or only slightly rising prices.
capital protection level
The capital protection level or floor indicates the guaranteed minimum redemption regardless of the performance of the underlying security.
Upon expiry of a Structured Product, redemption takes place according to the payoff diagram defined in the termsheet. The issuer is allowed to redeem according to the product description (termsheet) in form of physical delivery or cash payment. This is also referred to as cash settlement. On the redemption date, the investor receives the value of the product (at final fixing) in cash.
This is a binary or digital option. If the price of the underlying is below the barrier, the investor receives a predetermined amount as payoff. Otherwise, the investor suffers a total loss.
This is a term used in Germany for Structured Products.
This is an exotic option that allows the holder to decide within a specific period of time whether, at expiry, he wishes to exercise the option as a call option or a put option.
clearing & settlement
The purpose of ’clearing & settlement’ is to conduct the clearing and the settlement of trades.
The closing price is the final price at which a security is traded on a given trading day.
This is an acceptable asset posted to/by a counterparty used as a form of (credit) protection.
Collateralized debt obligations (CDO) are a form of structured financing. They are fixed-income securities which are subdivided into three tranches: senior tranche (lowest default risk), mezzanine tranche (medium default risk) and equity tranche (highest default risk). The higher the risk, the higher the coupon. They are based on mortgage-backed securities and/or high-yield bonds as underlyings.
Commodities include products and goods, such as grains, oil, cocoa, etc.
If the trading currency of a Structured Product is other than the underlying’s currency, it is termed a composite product. The price of the product is derived from the underlying’s performance and the fluctuation in the exchange rate. A Quanto feature provides a potential hedge.
This is an exotic option for which the underlying is another option.
conditional capital protection
This indicates that capital protection is tied to a condition. The conditions are the non-occurrence of a credit event or the sound condition of a barrier.
A condor is purely and simply an option strategy through which the investor benefits from a sideways trend of prices.
Connexor is a service of SIX Group to centrally capture and distribute reference data of financial products.
The Commissione Nazionale per le Società e la Borsa (CONSOB) is the public authority responsible for regulating the Italian financial markets.
Contango describes the price situation for forward transactions where those with a longer term are priced lower than those with a shorter term. If expiring forward contracts are converted (rolled) into longer term contracts, so-called roll losses ensue.
Convenience yield is also referred to as availability premium and explains inverse forward curves (backwardation).
The conversion premium is equivalent to the increase in the price of the underlying which is required for the option component of an Exchange- able Certificate to become activated. The conversion price is calculated by adding the conversion premium and the price of the underlying at final fixing.
The conversion price is typical for Exchangeable Certificates. The actual participation in the positive performance of the underlying only commences once the price of the underlying exceeds the conversion price.
This measures how two variables move in relation to each other. The correlation coefficient Rho, which measures the correlation, ranges be- tween -1 and +1. A correlation coefficient of 1 implies that as one variable moves, either up or down, the other variable will move in lockstep, in the same direction. Alternatively, a correlation coefficient of -1 means that if one variable moves in either direction the variable that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the variables are said to have no correlation; they are completely random.
The intrinsic value of a corridor warrant increases by a fixed amount with every day on which the underlying trades within a defined corridor. At expiry, the accrued intrinsic value is paid out. A note of caution: There are corridor products where a fixed amount is deducted for each day on which the underlying trades outside the corridor.
COSI stands for collateral secured instruments and is used in Switzer- land for a segment of Structured Products which minimizes issuer risk. It is a service that deposits securities at SIX Swiss Exchange in the form of collateral, based on a product’s market price and fair value.
This is the risk that losses may occur in case of the counterparty’s bankruptcy (insolvency).
The coupon is fixed at the time of issue of fixed-interest securities and is paid out periodically.
coupon at risk
This describes the situation when a specific scenario occurs and the coupon is not paid out.
covered call writing
Covered call writing represents the combination of an underlying with the sale of a call option on the same underlying.
covered option transaction
Covered option transactions are the sale of call or put options. The seller has to submit to the buyer’s decision whether or not he exercises his option.
A credit default swap (CDS) is a derivative financial instrument which enables trading of default risks of loans.
A credit event occurs, when the debtor can no longer meet the creditor’s claims arising from a loan granted. The following events can constitute a credit event either in isolation or in combination: bankruptcy, obligation default, potential obligation acceleration, obligation acceleration, obligation repudiation/moratorium and restructuring according to the International Swaps and Derivatives Association.
A credit linked note (CLN) is a product whose redemption depends on credit defaults in a specified portfolio.
The credit rating is a measure for the debtor’s ability and willingness to pay. For the assessment of the financial security of the debtor, credit ratings or credit spreads, for example, can be used as a guide.
A credit spread allows the assessment of the creditworthiness of a debtor. The credit spread represents a debtor’s risk premium. Companies with poor creditworthiness normally have a high credit spread.
A cross option is an option where the price of the underlying and the payoff are calculated in different currencies.
This is a swap that involves the exchange of a series of interest payments on agreed amounts of capital in two different currencies over an agreed period of time.
A day trader seeks to make profits within a single day by taking advantage of short-term price movements on the stock exchange or of individual shares. On the evening of the day, a day trader closes out all trades before the market closes and does not hold any open positions over- night (liquidation).
Delta is one of the dynamic key figures for derivatives. The delta of an option states the change in the monetary value of the option for a one basis point change in the price of the underlying. Additionally, the ratio needs to be taken into consideration if it is not equal to 1. While the delta for call options is between 0 and 1, it ranges between -1 and 0 for put options.
In the case of delta hedging, positions are compiled in such a way that a change in the price of the underlying entails no immediate change in the value of the portfolio. This is attained if the portfolio is kept delta-neutral using delta hedging.
Derivatives are artificially created financial instruments whose value can be derived from the price of one or more underlying assets. A derivative itself is a contract between two parties. Warrants and Structured Pro- ducts are securitized derivatives. As securities, they are more readily available for private investors than non-securitized derivatives such as futures or options.
Unsecured derivatives, in particular bonds and futures, are traded on a derivatives exchange. One of the best-known derivatives exchanges worldwide is the EUREX.
The discount is equivalent to the reduction in price in relation to direct investment in the underlying asset.
By following discretionary strategies, underlying assets are restructured by the investment manager on the basis of assessment of market conditions.
distance to the strike price
The distance to the strike price allows an estimation of how far the price of the underlying is away from the strike price of the option on which the product is based.
Diversification is a risk management technique whose aim is the reduction of the overall risk of the portfolio by allocating the assets among various investment objects.
This is a call option which is only activated following a barrier breach or a drop below the barrier.
This is a put option which is only activated following a barrier breach or a drop below the barrier.
This is a call option which becomes worthless and expires immediately after a barrier breach or a drop below the barrier.
This is a put option which becomes worthless and expires immediately after a barrier breach or a drop below the barrier.
Duration is a measure of the sensitivity of a bond to a change in interest rates. The duration represents the average capital commitment period of a fixed-income instrument. The duration of a zero bond is equivalent to its maturity.
Different to static strategies, the composition or weighting of the underlying assets changes with dynamic strategies. A distinction is made between rule-based strategies and discretionary strategies.
This is a term used for stock exchanges in emerging countries. Emerging markets are to be found, in particular, in Latin America, Southeast Asia and Eastern Europe. It is generally expected that many of these markets have considerable growth potential since these regions have or have had markedly stronger economic growth than large industrial nations.
equity linked notes
This is the American term for Structured Products on shares.
The EUREX is one of the world’s largest derivatives exchanges. On the EUREX, unsecuritized derivatives, such as bonds and futures are traded. EUREX was formed through a merger of SOFFEX (the Swiss Options and Financial Futures Exchange) and the DTB (the German Futures and Options Exchange).
This stands for the European reference interest rate (European Interbank Offered Rate).
For this type of barrier, the performance of the underlying during maturity has no effect. Important is solely the price at final fixing. A barrier breach only occurs when the price of the underlying at final fixing is at or below the level of the European barrier.
A European style option can be exercised only at expiry as opposed to an American style option.
The European Structured Investment Products Association (EUSIPA) unites the most important derivatives associations under one roof. Uniform categorization gives EUSIPA greater transparency between the individual exchanges.
The EUSIPA Derivative Map© divides Structured Products into five categories. While Capital Protection Products allow for minimum protection of the nominal of 90%, yield optimization products have a profit limitation. Participation products offer unlimited upside participation but there is also the possibility of a total loss. Leverage products include a leverage which allows leveraged participation in rising or falling prices. Leverage products can be divided into leverage products with Knock-Out and without Knock-Out.
This describes the product type according to the EUSIPA Derivative Map© using the corresponding four-digit identification number.
The European Warrant Exchange (Euwax) is among the largest trading places for Structured Products in Europe. The trading platform is managed by Börse Stuttgart.
These are exchange-traded tracker certificates on commodities. Different to Switzerland, in Germany these products are securitized.
exchange traded products (ETP)
These are bonds which are issued as securities. ETP have a symmetrical payoff structure and must be backed. ETP can have more than one market maker.
Every option contains an option right. The holder has the right, but not the obligation, to exercise this right at expiry (European option) or at any time during maturity (American option). A call warrant gives the right to buy a specific amount of a specified underlying at a fixed price (strike price). Accordingly, a put warrant secures a right to sell.
These are options with a more complex payoff structures than those of plain vanilla options, e.g. call options.
On the date of expiry, redemption of a certificate or warrant takes place. Redemption can be made as a cash settlement in the form of a money transfer into an account or the physical delivery of the underlying.
When assets are exposed to the influence of changing parameters (risk factors), there is exposure to these parameters.
The fair value is the theoretical value of a Structured Product and is determined by the payoff function at expiry. The following are relevant for the fair value: i) the underlyings, ii) potential dividend forecasts, iii) interest, iv) implied volatility v) regulatory measures, and vi) corporate actions.
fair value gap
The fair value gap is equivalent to the percentage difference between the current ask price and the actual value of the product.
Finanzinspektionen (FI) is Sweden’s financial supervisory authority.
This is an order which must be executed in its entirety at a specified price. If the order can only be partially executed, the entire order is can-celled.
The financing level is used for Mini-Futures. It determines the level of financing from external sources and thus the value of the mini future. It is normally adjusted overnight by the accrued interest.
The Swiss Financial Market Supervisory Authority FINMA (Eidgenössische Finanzmarktaufsicht) is the independent supervisor of the Swiss financial market and, by public authority, is responsible for the supervision of banks, insurance companies, stock exchanges, securities traders and collective capital investments. FINMA was established in 2009 through the merger of its three predecessor institutions: the Federal Office of Private Insurance FOPI (Bundesamt für Privatversicherungen BPV), the Swiss Federal Banking Commission SFBC (Eidgenössische Bankenkommission EBK) and the Anti-Money Laundering Control Authority AMLCO (Kontrollstelle für die Bekämpfung der Geldwäscherei GwG).
first listing day
This is the first day on which a security is traded on the secondary market.
This is one of the world’s leading rating agencies. The agency assigns credit ratings.
This represents the minimum amount which is redeemed at a product’s expiry, independent of the performance of the underlying.
This changes during the maturity of a product (refer to Trigger).
The Financial Market Authority (Finanzmarktaufsicht - FMA) supervises banks, financial services providers, insurance undertakings and securities trading in Austria. Also, the supervisory agency in Liechtenstein is called FMA.
The forward is a non-standardized, unconditional forward contract between two parties. Forwards are not exchange-traded.
Funding is the provision of resources usually in the form of money (financing).
refer to ’mutual funds’
Futures are standardized futures contracts which are traded on derivatives exchanges such as the EUREX. Futures are unconditional forward transactions. On the date of expiry, both parties to the transaction - buy- er and seller - are obligated to fulfill their part of the transaction.
A futures contract is a contractual agreement for a transaction in the future. It is characterized by the fact that service and consideration do not take place at the conclusion of contract or immediately afterwards, but at a later date in the future.
The gamma can also be described as the delta of the delta. It measures how fast the delta changes when the price of the underlying changes by one unit. In mathematical terms, it is the second derivation of the option value after the price of the underlying.
Leverage (gearing) represents the ratio between the price of the underlying and the price of the product. The following normally applies: the higher the gearing, the higher the risk.
These are key figures which describe the sensitivity of an option to various parameters. Among the key parameters are the price of the under- lying (delta, gamma), the volatility (vega), the interest rate (rho) and the remaining period of maturity (theta).
This is mainly found in tracker certificates on price indices. Instead of paying dividends, the certificate has a growth factor.
This is when a defined scenario leads to early exercise (redemption) of the product (e.g. Triggered Auto-Call).
This is a special type of fund, which uses alternative investment instruments or strategies such as short selling and borrowing, in order to enable a higher yield.
Hedging is a trading strategy to protect a portfolio or position from price fluctuations.
In the financial sector, volatility is an indicator of the degree of fluctuation of a financial instrument. The historical volatility indicates how strongly the price of a particular financial instrument has fluctuated in the past. Volatilities can be calculated for various periods of time; normally over 100 or 250 trading days.
This warrant expires prematurely when the underlying reaches or breaches a predetermined barrier. In such cases, the investor is paid out a certain amount; otherwise the product expires worthless.
Together, the price of the underlying and the implied volatility constitute the key influencing factors on the value of options. A rising level of implied volatility of the underlying leads to rising prices of options, as the probability of high redemption at expiry increase. At the same time, the maximum loss for the investor always remains limited to the invested capital.
A call option is in-the-money when the price of the underlying is significantly above the strike price. A Put is in-the-money when the price of the underlying is significantly below the strike price.
index linked notes
This is the American term for Structured Products on indices.
These belong to the category of tracker certificates. They track the performance of an index on a one-to-one basis.
This is the date on which flexible elements are fixed. Flexible elements vary according to issuer and product. Normally, the level of the strike price and the barrier are fixed at initial fixing.
The holder of an inline warrant receives a fixed amount at expiry if the underlying’s price during the term does not leave a predetermined corridor. Different to a range warrant, an inline warrant becomes worthless and expires prematurely when leaving the corridor.
These are capital market participants who as an institution manage monies and invest them in the financial markets as part of their business activities. Some examples of institutional investors are: banks, investment companies, insurance companies, pension funds or mutual funds.
The price of an option is comprised of two components; namely, the fair value and the intrinsic value. The fair value of a call option is equivalent to the difference between the current price of the underlying and the strike price multiplied by the ratio (or divided by the ratio). An option only has an intrinsic value if it is in-the-money; otherwise, the intrinsic value is equal to zero. The intrinsic value is never a negative value.
The securities identification number is assigned to every security for identification purposes. The German domestic equivalent is the securities identification number (Wertpapierkennnummer), in Switzerland the Valor is used additionally as domestic identifier.
An issue is the public offering of securities which are intended to be listed on a financial exchange.
The issue price is the price at which a newly issued security is offered for sale.
An issuer is a legal entity that develops, registers and sells securities.
This is risk which arises from the issuer’s default probability.
The knock-in is the former term for barrier.
The knock-out determines the price threshold where the option component or even the entire product becomes worthless and expires.
The ladder option is an exotic option. At regular intervals, price levels reached are locked in and set as a floor value. It is constructed using a number of Barrier Options.
last trading day
This is the last day on which a security can be traded on the secondary market.
Lead manager is a term for the bank or banks in charge of the under- writing consortium. The lead manager is responsible for the composition of the consortium, conditions and contract design, documentation, etc.
A lead order is equal to the amount invested in the Structured Product at the time of issue.
Leverage (omega) is a key figure for assessing the leverage effect of options or warrants. It indicates the percentage to which the price of a Call (Put) rises (falls) when the price of the underlying increases by 1%.
LIBOR stands for London Interbank Offered Rate. It is a reference interest rate (fixed each day) at which banks on London’s interbank market lend out money to one another. The LIBOR is also the reference rate for international interest rates for issues and loans.
Limited orders are the most common type of orders. The buyer (seller) specifies the maximum (minimum) price he wishes to pay (obtain). By using limit orders, the investor can protect himself from buying a pro- duct at too high a price or selling at too low a price. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Liquidity is a measure to which degree a financial instrument is readily tradeable. It is secured by the issuer’s or market maker’s provision of continuous buying and selling prices.
Products with a lock-in feature allow the investor to hold on to potential profits. When the lock-in level is reached, a guaranteed redemption at the level of the lock-in is made at expiry regardless of the performance of the underlying.
Barrier and/or strike price are fixed after a certain period of time (the product is already launched).
Low Exercise Price
Market capitalization or stock market capitalization is the market value of a listed company. Market capitalization is calculated by multiplying the current market price of one share by a company’s shares outstanding
The market maker is a market participant (e.g. bank or investment firm) who sets binding prices. The market maker works on his own account at reduced transaction costs. It is his task to set bid and ask prices to enable the trade of these products.
A market order is an order to buy or sell an investment immediately at the best available bid or ask price. This only makes sense, however, if there is sufficient volume in the order book. In the case of small volumes, the investor takes a risk to pay (obtain) considerably more (less) than anticipated when buying (selling).
Market risk is the possibility for an investor to experience losses due to a change in the market prices. In the case of Structured Products this risk can be estimated with the aid of the Swiss Structured Products Association’s risk figure.
The maturity date is the date on which the principal amount of a financial instrument becomes due and is repaid to the investor and interest payments stop.
This key figure states the maximum possible redemption amount (at expiry).
max. yield %
The maximum yield is the maximum expected profit potential. This key figure is used for all certificates with a maximum yield.
MiFID stands for Markets in Financial Instruments Directive and is a European Union Directive on the harmonisation of financial markets in the European Single Market. The MiFID aims to improve transparency of the financial markets and, consequently, increase the level of investor protection.
Mispricing is the incorrect valuation of products.
This is the market for short-term financial instruments (usually for periods up to 12 months).
Moneyness is a key figure which addresses the value of an option. There are many forms of moneyness, including out-of-the-money, at-the-money or in-the-money.
This is a numeric calculation that can be used for Structured Products and options.
Moody’s is one of the world’s leading rating agencies. The agency assigns credit ratings.
A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage. Assets, in this case real estate, are transferred by the bank for the purpose of securitization to the special pur-pose vehicle (SPV). The level of securitization and the value of the products depend directly on the secured receivables of the SPV. If the credit rating of the assets falls, the value of the SPV and the securities issued also decreases. Mortgage-backed securities, in particular, suffered enormous losses during the subprime crisis.
A mutual fund consists of assets which the fund management solicits publicly from investors for the purpose of collective investment. A mutual fund is usually administered by the fund management for the account of the investors, in accordance with the principle of risk diversification.
The Nasdaq (National Association of Securities Dealer’s Automated Quotation System) is an electronic stock exchange in the USA. Predominantly, trading on the Nasdaq involves stocks of high-tech companies which are not listed on the NYSE (New York Stock Exchange).
net asset value
Net asset value equals an mutual fund’s net assets divided by the number of shares in circulation. It states the fair value of a fund share and is generally calculated and published on a daily basis.
A new issue is a reference to a security that is being sold on a market to the public for the first time.
The nominal value of a bond is equal to the outstanding exposure stated on the security. Therefore, the nominal is decisive for the return.
An option confers the right to buy (call) or sell (put) a specified quantity of an underlying instrument at a fixed price at a specified time (European option) or any point during a specified period (American-style option).
The LEPO is a call option with a strike price close to zero (e.g. 0.01). These options are primarily used for the construction of participation products.
The order book states the current price and the volumes for the buy-side and the sell-side.
The originator acts as seller of illiquid mortgages. This is normally a bank.
Over-the-counter is a transaction between two counterparties where the terms of such transaction are freely negotiated (as distinct from an exchange traded transaction where the terms are prescribed by the rules of the relevant exchange) and does not involve an exchange.
A call option is out-the-money when, the price of the underlying is below the strike price. Conversely, a put option is out-the-money when the underlying is above the strike price.
This is the price at which a direct investment would have achieved the same performance as a capped outperformance certificate.
For Structured Products, the participation specifies the level (as a percentage) at which the investor can profit from the performance of the underlying.
Passive investment instruments try to replicate the benchmark as exactly and cost-efficiently as possible.
Payoff diagram is the graphic representation of the payout structure at expiry of a financial instrument. The payoff diagrams on the SVSP Swiss Derivative Map depict the most typical payment mechanism for a specific product type at expiry. For reasons of clarity, there is no illustration of bearish product types for investment products.
The performance shows the price development of a security. Usually, the description of the performance relates to a specified period (e.g. one year) and is expressed in terms of percentage.
Performance index differs from a price index in as much as it includes all dividends. Dividend payments are reinvested in the components of the index on a pro rata basis.
Depending on the terms of the product, physical delivery can occur at expiry, in other words the underlying is transferred into the investor’s account.
In the area of Structured Products, the term plain vanilla regularly refers to the standard form of a product type. The term plain vanilla options was originally used for conventional options. Nowadays, however, it is also used for other product types, such as plain vanilla discounts for conventional discount certificates.
The premium is the difference between the nominal (nominal value) and the higher price of a security at the time of issue. The premium is normally stated as a percentage. Opposite: Discount.
The premium level is equivalent to the strike price of a Bonus Certificate. It states the minimum amount the investor will receive if the barrier has never been touched.
The premium yield states the yield which can be obtained through the premium. At issue, it is roughly equivalent to the sideways yield. How- ever, if the price of the certificate increases and exceeds the strike price, different to the sideways yield, it will turn negative.
This is the current, discounted value of an investment.
Purely share price changes are part of the calculation of this index. Different to a performance index, dividend payments are not included.
refer to Greeks
This is the time between the issue and the settlement of a product.
product information sheet
The product information sheet (Produktinformationsblatt PIB) is a comprehensive product description comprising about 2-3 pages which follows a standard format and describes the key characteristics and risks of a product.
Die EUSIPA Derivative Map© is divided into product categories and pro- duct types. The product type is defined on the basis of the payoff diagram (payout profile) at expiry. Products with an identical payoff diagram be- long to the same product type.
This occurs when various financial institutions not only manage their customers’ orders but also trade in their own name and for their own ac- count. Proprietary trading primarily falls within the investment banking sector of a financial institution.
This is the combination of a long position in the underlying with a put option.
The put-call parity is an equilibrium relationship between the prices of a Call and a Put of an otherwise identical option.
Numerous underlyings of Structured Products are listed on their home stock exchange in foreign currencies (e.g. Japanese stocks in JPY). As the value of such products is calculated in a foreign currency at expiry, the investor is exposed to currency risk when buying such a product. Structured Products with a Quanto feature include currency hedging (by using a Quanto option) which protects the investor from exchange rate fluctuations.
Issuers quote bid and ask prices for their own products on an ongoing basis. A quote always consists of a symbol, the ISIN, a bid price with the corresponding volume and an ask price with the corresponding volume.
quote availability in %
The quote availability describes the price availability of a product during one day as a percentage. The quote availability represents the unilateral price availability. It is sufficient for either bid price or ask price to be available.
A rainbow option is based on several underlyings. The most common types of rainbow options are “best of” and “worst of”. They are based on the underlying with the best and worst performance respectively.
A ratchet option is a series of at-the-money options. The strike price is set periodically at the new current price of the underlying.
Rating is the categorization of countries, banks and capital market securities in relation to their creditworthiness. Rating into a classification system (e.g. AAA, AA, A, BBB, etc.) is done either by neutral rating agencies or by editorial offices of internationally recognized financial publications. A rating may also be carried out at the request of the issuer. The worldwide leading rating agencies are: Standard & Poor’s Corporation, Moody’s Investors Service, Keefe, Bruyette & Wood’s Inc. and International Banking Credit Analysis Ltd.
The ratio specifies the number of products required for purchasing an underlying. For example, for a warrant, a ratio of 100 means that 100 warrants are required to purchase the underlying at a price equal to the strike price.
A rebate is a distribution made following a barrier breach. The rebate is expressed as a percentage of the nominal.
This is when a barrier breach is reversed.
Depending on the terms of the product, redemption takes place after a certain period of time or, at the latest, at expiry. Products which can become worthless and expire, such as Knock-Out warrants, are an exception.
A reference bond is the respective bond of the reference debtor on which the reference debtor certificate is based. It defines the additional credit risk of the product (also refer to credit event).
reference bond issuer
The term reference bond issuer refers to the debtor of a reference benchmark.
Rho is one of the dynamic coefficients that indicates the degree to which the value of an option or warrant reacts to changes in interest rates. As the influence of changes in the level of interest rates on the price of options is comparatively small, rho is of little significance for the investor.
Every investor has an individual risk profile which is defined by his financial situation, his risk tolerance and his investment horizon. Differentiation is made between risk-averse, risk-neutral and risk-seeking investors.
This refers to being reluctant to take risks; the opposite of risk-seeking.
This is a yield which can be obtained without taking risks.
In the case of rule-based strategies, a potential redistribution of the underlying assets of a product follows set rules at a specified time or based on certain events, such as a barrier breach.
S&P is one of the world’s leading rating agencies. The agency assigns credit ratings.
Many Structured Products can achieve attractive yields even with falling prices of the underlying as long as the specified barrier is neither touched nor breached. The current distance between the underlying and the barrier is referred to as safety buffer.
The trading time between when a product is first purchased by investors directly from issuer and the expiry of the product.
A distinction is made according to the type of receivable. Typically, asset backed securities are based on receivables from credit cards, consumer loans, leasing receivables, social security contributions or, for example, receivables from the sale of football tickets. Asset backed securities which are based on mortgages are referred to as mortgage backed securities.
refer to Greeks
These are assets which are excluded from the bankruptcy estate. Fund shares, for example, have the status of separate assets and are, as such, not subject to the issuer’s default risks.
Settlement is the process whereby the investor pays for subscribed securities.
A short position is the sale of a security which the seller does not yet own, i.e. an open position. This transaction is referred to as short selling.
Short selling is the sale of securities which are not owned by the seller. These sales lead to short positions. The seller’s motive is an anticipated fall in price. He is hoping to buy back the security at a later time for a lower price, thus making a profit.
The sideways yield indicates the returns investors can earn if the price of the underlying asset closes at expiry at the same price as on the observation date.
The issuer has the option to prematurely redeem the product.
The SPV (special purpose vehicle) is normally established for a single purpose. It is a special purpose company which is a legal entity that is founded for and limited to a specific and clearly defined purpose.
The spot price is the price which is quoted for immediate payment and delivery.
refer to bid-ask spread
spread availability in %
The spread availability describes the price availability of a product over the period of one day in terms of percentage. The spread availability represents the bilateral price availability requiring a bid price as well as an ask price.
Sprint certificates are the German equivalent of a Capped Outperformance Certificate.
SSPA is the abbreviation of the Swiss Structured Products Association.
The standard deviation is a measure of the dispersion of a set of data from its mean.
The stop-loss is associated with Mini-Futures and is periodically adjusted, similar to the financing level. If the stop-loss level is touched or prices fall below this level, the product expires prematurely. Different to the Knock-Out, a settlement (evening-up) of the position takes place, whereby a final balance can be paid out. The distance to the stop-loss determines the risk buffer in relation to premature expiry of the mini future.
Mini-Futures have the added feature of a stop-loss limit. If the price of the underlying touches the stop-loss threshold during its term, the pro- duct immediately expires. In most cases, the investor is credited a remaining amount when the stop-loss limit is touched.
This is an option strategy which allows the investor to make a profit regardless of the volatility.
This is an option strategy, which allows the investor to make a profit if there is significant price movement.
The strike price of a Structured Product is normally determined by the option component. The strike price determines the price at which the underlying asset of an option can be bought (call option) or sold (put option). In the payoff construction of a Structured Product the strike price is pictured as a bend.
In Structured Products, conventional financial instruments are combined with derivatives to create a stand-alone product that is then certificated and issued by an issuer.
The term subprime became widely known during the financial crisis 2008/2009. The term is used for certain US mortgages and refers to lending to borrowers at a higher rate than the prime rate as they have a higher risk of default.
The subscription period is the time during which investors can subscribe to newly to be issued Structured Products in order to buy them at a later date at the terms and conditions applying to the new issue.
Subtype describes the direction of a product’s participation. The terms call, bull and also long stand for products which forecast a rising mar- ket, while put, bear and short stand for products which predict a falling market.
Contractual arrangement between two parties to exchange future cash flows at fixed times and with fixed modalities. The most common types of swaps are interest rate swaps and currency swaps.
Synthetic hedging combines a bond with the sale of a put option. The combination created is equivalent to the payoff construction of a Reverse Convertible.
This is a document produced prior to execution indicating the financial terms and conditions of a specific transaction. The termsheet does not constitute a confirmation, or a binding commitment to trade. The issuer usually provides investors with these termsheets at no charge.
The theoretical value is the calculated value of a warrant or subscription right without taking into account premiums or mark-downs.
Leverage products comprise time value and intrinsic value. The time value goes down gradually during maturity and more rapidly towards the end of maturity. At expiry, the time value is 0. Theta is one of the dynamic coefficients that indicates the degree to which the value of an option theoretically loses in time value if all other influencing factors on the price of the option remain constant (ceteris paribus). Theta is usually given as a percentage per week.
Tier 1 Ratio
The Tier 1 Ratio defines the core capital as a percentage of risk-weighted assets.
total return index
refer to Performance Index
This is the currency in which the instrument is traded. The currency does not necessarily have to be identical with the currency of the underlying nor with the currency of the strike price.
Triggers are mainly found as a component of express certificates. Similar to a barrier, a trigger is a crucial price threshold. If the price of the underlying is equivalent to or above the trigger on an observation date, premature redemption takes place automatically.
Expressed in currency units, the turnover represents the total turnover of capital for a warrant or Structured Product (includes all purchases and sales).
The term underlying denotes the underlying asset of a derivative. Warrants usually have shares, share indices, commodities, interest rates or currencies as underlyings.
This is a call option which is only activated when a barrier is touched or exceeded.
This is a put option which is only activated when a barrier is touched or exceeded.
This is a call option which becomes worthless and expires when a barrier is touched or exceeded.
This is a put option which becomes worthless and expires when a barrier is touched or exceeded.
value at risk (VaR)
Value at risk (VaR) is a risk measure for assessing the risk of a product. The VaR indicates the loss level over a certain holding period (e.g. 10 days) which with a specified probability (e.g. 95%) will not be exceeded.
The vega measure of the change in option value, given a 1% change in volatility. For conventional options the vega is always positive.
Volatility describes the intensity of price fluctuations of a security. Differentiation is made between historic and implied volatility.
Examples for yields gained by underlyings are dividends of shares or interest of bonds.
Unlike conventional bonds, zero bonds include a discount rather than a coupon. The bond is issued under par and at expiry is paid off at the nominal value.