2. Contents
Leverage Floating Rate Notes··································1
Reversed Leveraged Floating Rate Notes················4
Principal Linked Notes with Look Backed Option····7
Principal Linked Notes with Binary Option············10
Principal Linked Notes with Knock-Out Option·····13
Principal Linked Notes with Quantos Option········16
Appendices····························································19
3. Leveraged Floating Rate Notes USD LIBOR
General Term
Issuer JP Morgan Bank
Maturity 5 year
Notional
Amount
$ 50,000,000
Issue Price 100% of the aggregate Notional
Amount
Currency US Dollar
Min Redemption 100%
Coupon 3*LIBOR - 2.3%
Principal Protected
1
4. Leveraged Floating Rate Notes
The GDP growth rate remain in the
ideal range 2%-3%.
With the unemployment rate reaches
lowest level, the U.S. economic is
growing at a stable pace.
The stable growth of US economics.
Fed raised the interest rate in
December 2015 and will continue to
raise interest rate in 2016.
2
USD LIBOR
6. Reversed Leveraged Floating Rate Notes
Floating
Coupon
• 100% Principal Protection
100% Principal
Redemption
General Term
Issuer Deutsche Bank
Notional Amount ₽ 100,000,000
Min Redemption 100%
Maturity 3 Years
Issue Price
100% of the aggregate
Notional Amount
Currency Russian Ruble
Coupon 22.5% - 1.5*Ruble
4
RUB
7. Reversed Leveraged Floating Rate Notes
• European Union and the US used economic
sanctions to target Russia’s financial, energy
and defense sectors
• Sharp decline in global oil prices since June
2014
• Ruble has fallen nearly 50 percent against the
dollar since August 2014
• Reverse Fund, supported by excess oil revenue,
has fallen 45 percent since September 2014
• Hard currency reserves, saving reserves but
sacrificing the Ruble Russia interest rate CBR last year
5
RUB
9. Highest Option Part
Return Guaranteed
80% Principal Protection
2 Look Back Options on
MARUTI
General Term
Issuer Maruti Suzuki India Limited
Notional Amount ₹ 50,000,000
Redemption 80%
Maturity 2 Year
Currency Indian Rupee
Issue Price
100% of the aggregate
Notional Amount
Coupon
80%+2*Max(Highest price of
MARUTI through Maturity -
4000,0)/4000
7
Principal Linked Notes with Look Back Option
MARUTI.
NS
10. • Maruti – automobile manufacturer in India.
As of November 2012, it had a market share
of 50% of the Indian passenger car markets.
In February 2012, the company sold its ten
millionth vehicle in India.
• India’s economic growth is outpacing that of
all other large nations at around 7.5%
• Inflation Eased: retail inflation in India has
moderated to 4.8% in March from 5.3% in the
previous month
• India’s economy benefits from low oil prices,
which has slashed heavy bill for energy
imports
Price Target Summary
Mean Target 4,456.20
Median Target 4,481.00
High Target 5,290.00
Low Target 3,311.00
8
Principal Linked Notes with Look Back Option
MARUTI.
NS
12. Principal Linked Notes with Binary Option
General Term
Issuer HSBC
Maturity 5 year
Notional Amount ￥100,000,000
Issue Price 100% of the aggregate Notional
Amount
Underlying Index Hang Seng China enterprises Index
Min Redemption 100%
Currency CNY
Coupon 100%+1*(If Maturity Index price
higher than Strike Level, pay unit
cash)
100% Redemption
Principal Protected
10
HSCEI
13. Principal Linked Notes with Binary Option
Stock market turmoil in the middle of
2015, will recover in the next three years.
Goldman Sach still bullish on China.
IMF remains sanguine on China.
HSBC expects the Hang Seng China
enterprises Index at 10000 by year-end.
1.70%
1.80%
2.30%
1.80%
1.60%
1.80%
1.90%
1.70%
1.30%
1.80%1.80%
1.60%
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
China GDP Growth Rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Mar-16
Aug-16
Jan-17
Jun-17
Nov-17
Apr-18
Sep-18
Feb-19
Jul-19
Dec-19
May-20
Oct-20
10-yr Government Bond
11
HSCEI
15. Principal Linked Notes with Knock-out Option
Knock-out
Spread beats
2.91% interest
87.85%
Principal
Redemption
General Term
Issuer Industrial and Commercial Bank of
China
Notional Amount ￥400 Million
Maturity 3 Years
Issue Price 100% of the Notional
Min Redemption 87.85%
Redemption 87.85%+ Leverage (3)*Payoff on
Knock out spread
Currency USD/CNY
13
USD/CNY
16. China's central bank is under pressure from policy advisers to let the Yuan
currency fall quickly and sharply
China tries to use competitive devaluation to help its struggling exporters.
China’s Yuan falls 2.4% on trade-weighted basis in 2016
Differentials in Inflation forecast 2020 (4.5% in China VS. 2.8% in U.S.)
14
Principal Linked Notes with Knock-out Option USD/CNY
18. Quanto Option
beats the 13.41%
interest
100%Principal
Redemption
General Term
Issuer Banco Itaú
Notional Amount B$200 Million
Maturity 3 Years
Issue Price 100% of aggregate Notional
q 13.41%-q=(-0.08)-
1.92%+0.553*17.45%*21.56%
Min Redemption 100%
Redemption 100%+ Leverage (2)*Max(0,S-K)/K
Underlying Index NIKKEI 225
Principal Linked Notes with Quantos
16
Nikkei 225
19. Principal Linked Notes with Quantos
Stable GDP Growth rate and constantly increasing inflation rate
3.3% unemployment rate in January 2016, compared to the 5.5% in the U.S
Japan recorded a $242 billion trading surplus in February of 2016; Japan’s
economy is well-known by its efficiency and competitiveness in exports oriented
sectors
17
Nikkei 225
22. Appendix-Research Report Reference and Data Sources
Research Report :
Leslie Shaffer, HSBC cuts outlook for China stocks, Feb 23 2016
Leslie Shaffer, Goldman: Still bullish on China, despite slashing target, Oct 8 2015
Lee, Jasmine. Why the Russian Economy is Tumbling. April 12, 2016
Andrianova, Anna. Russia’s Economy is Tanking, so Why is Putin Smiling? February 29, 2016
Hindustan Times. Indian economy: Too early to crack open the bubbly
Lingling Wei. The Wall Street Journal: Confused by China’s Yuan? It’s Intentional, Jan 15,2016
Jianxin Lu, Patrick Graham, Reuters: China Lets Yuan Slide, Starts Fight to Halt Turbulence, Jan 7, 2016
Figure:
Figure 1:Historical Libor Rate Source: http://www.macrotrends.net
Figure 2:Historical HSCEI Index Source: Bloomberg
Figure 3:10-yr Government Bond Forecast Source: http://www.tradingeconomics.com
Figure 4:China GDP Growth Rate Forecast Source: http://www.tradingeconomics.com
Figure 5: Historical USD/RUB Rate Source: http://finance.yahoo.com
Figure 6: Historical value of Ruble Source: Central Bank of Russia
Figure 7: Historical Canada Index volatility table Source: Bloomberg
Figure 8: Historic Russian interest rate CBR Source: The Bank of Russia
Figure 9: Maruti Price Target Summary Source: Yahoo Finance
Figure 10: Japan Economic Forecast Source: http://www.tradingeconomics.com/japan/forecast
19
23. Appendix – Leveraged FRN
Vanilla Bond
Maturity 3
Settle 3/23/16
Maturity 3/24/19
Frequency 1
Swap 0.95%
Subsidy 0.15%
Subsidy 0.442%
Leverage 2
FIX 1.15%
Value FIX 1.195%
Floor 0.767%
Cost 0.016%
P&L 0.74%
Function 10: BlackCap(Start, End, CapRate, L, Frequ, vol, IsCap, Zeros, Result)
Carries out calculations for caps and floors using Black's model
Arguments:
Start 0 Time (years from today) when cap starts
End 3 Time (years from today) when cap ends
CapRate 0.767% Cap Rate
L 1 Notional amount
Frequ 1 Number of times a year cap is settled (= 12, 4, 2, or 1)
vol 25% Flat volatility. BUT enter price if implied volatility is to be calculated (i.e. Result=4)
IsCap FALSE TRUE if cap, FALSE if Floor
Zeros Array containing zero curve: Maturities in the first column and zero rates in second column
Result 0 0=Price, 1=Delta, 2=Gamma, 3=Vega, 4=ImpliedVol
Example: 0.01%
Term Structure
0 0.378%
0.5 0.895%
1 1.206%
1.5 1.230%
2 1.254%
2.5 1.279%
3 1.331%
20
25. Appendix - Binary Option
Vanilla Bond
Issuer xxx
Term 5 Years
Settlement 3/23/16
Maturity 3/23/21
Frequency 1
Coupon 0.00%
Redemption 100%
Swap 2.67% (Issuer cost of debt)
Subsidy 0.10% (Issuer incentve)
Leverage 1
Price 85.96%
Function 3: BinaryOption(S, K, r, q, vol, T, IsCall, IsFut, Divs, IsCash, Result)
Carries out calculations for binary options on stocks, stock indices,currencies and futures
Arguments:
S 9100 Asset Price
K 15000 Strike price
r 2.50% Domestic risk-free rate
q 0 Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if this parameter not applicable)
vol 26.00% Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T 5 Time to maturity (yrs)
IsCall TRUE TRUE if call, FALSE if put
IsFut FALSE TRUE if futures option, FALSE otherwise
Divs Array containing time to dividend payment and size of dividend payment in cols 1 and 2. (Leave blank if not applicable)
IsCash TRUE TRUE if Cash or Nothing, FALSE if Asset or Nothing
Result 0 0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example: 13.03% Continuous Dividends Dividends
13.02% Discrete Dividends 0.5 1
Vanilla 85.96%
Binary Options 13.03%
Value 98.99%
Profit 1%
22
27. Appendix-knock out
Vanilla Bond
Maturity 3
Settlement 4/16/16
Maturity 4/17/19
Coupon 0.00%
Freq 1
Swap 2.91%
Subsidy 0.150%
Pricipal 87.85%
Cost of Bond 81.03%
18.97%
Payoff
Bond Cost 81.03%
Leverage 3
Option Cost 6.15%
P&L 1%
Knock-out Call Spread
Function 4: BarrierOption(S, K, r, q, vol, T, IsCall, IsFut, H, IsUp, IsIn, Result)
Carries out calculations for barrier options on non-dividend-paying stocks, stock indices, currencies and futures
Arguments:
S 6.46 USD/CNY
K 6.46 Strike price
r 2.91% Domestic risk-free rate
q 0.84%
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if
this parameter not applicable)
vol 7.95% Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T 3 Time to maturity (yrs)
IsCall TRUE TRUE if call, FALSE if put
IsFut FALSE TRUE if futures option, FALSE otherwise
H 7.4 Barrier
IsUp TRUE TRUE if Up option; FALSE if Down option
IsIn FALSE TRUE if In option; FALSE if Out option
Result 0 0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example: 0.06740
Function 4: BarrierOption(S, K, r, q, vol, T, IsCall, IsFut, H, IsUp, IsIn, Result)
Carries out calculations for barrier options on non-dividend-paying stocks, stock indices, currencies and futures
Arguments:
S 6.46 Asset Price
K 7 Strike price
r 2.91% Domestic risk-free rate
q 0.84%
Dividend yield for stock index options, foreign risk free rate for currency options (Enter 0 if
this parameter not applicable)
vol 7.95% Volatility. BUT Enter Price if Implied Volatility is to be calculated (i.e. Result=6)
T 3 Time to maturity (yrs)
IsCall TRUE TRUE if call, FALSE if put
IsFut FALSE TRUE if futures option, FALSE otherwise
H 7.4 Barrier
IsUp TRUE TRUE if Up option; FALSE if Down option
IsIn FALSE TRUE if In option; FALSE if Out option
Result 0 0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho; 6=Implied Vol
Example: 0.00587
Net 6.1532%
24
28. Appendix-Quantos
Vanilla Bond
Maturity 3
Settlement 4/16/16
Maturity 4/17/19
Coupon 0.00%
Freq 1
Swap 13.41%
Subsidy 0.150%
Pricipal 100%
Cost 68.88%
31.12%
Payoff
Bond Cost 68.88%
Leverage 2
Option Cost 15.13%
P&L 1%
Japan Real Risk Free Rate -0.08%
Brazil Risk Free Rate 13.47%
Dividend Yield of Nikkei 225 1.92%
Volatility of Nikkei 225 21.56%
Volatility of JPY/BRL 17.45%
Correlation of JPY/BRL 0.01
JPY Numeraire -2.00%
Brazil. Numeraire 0.0207%
q 15.444%
Function 1: Black_Scholes(S, K, r, q, vol, T, IsCall, IsFut, Divs, Result)
Carries out Black-Scholes calculations for European options on stocks, stock
indices, currencies and futures
Arguments:
S 15751.13 Asset Price
K 13195.21 Strike price
r 13.41%
Domestic risk-free
rate
Quanto q 15.44%
Dividend yield for stock index options, foreign risk free rate for
currency options (Enter 0 if this parameter not applicable)
ASK vol 21.56%
Volatility. BUT Enter Price if Implied Volatility is to be calculated
(i.e. Result=6)
T 3 Time to maturity (yrs)
IsCall TRUE TRUE if call, FALSE if put
IsFut FALSE TRUE if futures option, FALSE otherwise
Result 0
0=Price; 1=Delta; 2=Gamma; 3=Vega; 4=Theta; 5=Rho;
6=Implied Vol
Price 15.13%
25
