Bilkent University
4 December 2012
Structured Derivatives: Certificates
Müge Türkkan
Erste Securities İstanbul
Plan
−Brief information about derivatives
−Brief information about structured derivatives
−Regulatory authorities
−Main features of Turbo Ceritificates
Brief information about derivatives
−Derivatives are:
Securities whose price is derived from one or more underlying assets. Their values are determined by the fluctuations in the underlying asset.
-Most common derivatives traded: -Forwards
-Futures -Options -Swap
Structured Derivatives
−Structured Derivatives are:
designed to facilitate highly customized risk return objectives by combining a traditional security with a derivative.
Structured products are replacing the usual payment features of a traditional securitiy with the non traditional payoffs derived from the perfomance of
−Derivatives Exchange Traded in Turkey: − Futures contracts (TurkDex)
− Options (2013 TurkDex &ISE)
−Structured Derivatives Exchange Traded in Turkey: − Certificates (ISE)
− Warrants (ISE)
−Certificates :
− Leveraged structured derivatives.
Structurally accomplished by the combinations of:
Bonds Options
Issuer,Maturity, no additional obligations for the investors
Strike,Intrinsic Value, Time Value, Leverage
Structured Derivatives
Regulatory Authorities
− Capital Markets Board
− CMB Circular Serial:3 No37 on trading of Covered Warrants
− Istanbul Stock Exchange
− Policies about quoting rules of certificates (ISE Mandat No:400)
− Brokers Association of Turkey (TSPAKB)
Main features of Turbo Certificates
Certificates
Certificates are securitised derivatives accomplishing payoffs due to the
predetermined conditions of the incremental price movements of an underlying asset. Certificates are giving right but no obligations for its investors.
Most common categories of certificates:
−Turbo Certificates
−Index Certificates
−Bonus Certificates
Turbo Sertifika Fiyatı Oluşturan Bileşkenler
Dayanak Varlık
Fiyatı Kullanım Fiyatı Dönüşüm Oranı Kur Oranı Finansman Maliyeti
Intrinsic Value of Turbo Long Certificates=((Underlying Asset - Strike)
Intrinsic Value of Turbo Short Certificates=((Strike – Underlying Asset) Turbo Certificates Pricing Formula =
(Intrinsic Value X Currency rate X Exchange rate) + Cost of Carry Volatility has an indirect effect on the price of certificates
Intrinsic Value
Main features of Turbo Certificates
Turbo Certificate Pricing Components
Underlying Asset Strike Exchange rate Currency rate Cost of Carry Turbo Certificate Pricing
Example:
The Spot price of the underlying price of a WTI futures contract is 90.21USD on 26.09.2012 at 14:41
Strike:78.32 USD Exchange rate:0.1
USD/TRY currency rate:1.7950
The theoretical price of the certificate with code EWTAA can be calculated as follows:
=(90,21-78,32)X0.1X1.7950 =2,134TL
The offer price of certificate is 2.17 TL . Therefore the cost of carry in this price is calculated to be 0.02TL excluding the minimum spread of 0.01TL.
NYMEX WTI en yakın Vadeli İşlem Sözleşmesi (Foreks CL1)
Uluslarası Serbest Döviz Piyasası USD/TRY (Reuters TRY=)
IMKB Sertifika Pazarı (Reuters TRY=)
Main features of Turbo Certificates
investor issuer 2.03TLInvestment 4TL Credit 2TL 4TL s har e price Underlying Asset
Garanti Bank share
Turbo Long Garanti Certificate Spot(t)=6 Strike:4TL Barrier:4.5TL Exchange Rate:1:1 Cost of Carry:0.02TL
Garanti L Cert.(T) Bid Ask
Market Maker 2.0 2,03
Spot(t)=6TL Buy certificate for 2.03TL Buy share for 6TL
Main features of Turbo Certificates
Example 2: Turbo Long Garanti Certificate S(t)=6TL
investor issuer 2TL e 3TL ic e
constant credit amount, leveraged capital gain
Underlying Asset
Garanti Bank share
Spot(t+1)=7TL Strike:4TL
Garanti L.cert.(t+1) Bid Ask
Market Maker 3.0 3,04 3TL Payment Sold certificate(t+1): 0.97TL Profit (%50) Bought certificate(t+1): 0.03TL Profit S(t)=6TL S(t+1)=7TL
Main features of Turbo Certificates
Example 2: Turbo Long Garanti Certificate S(t+1)=7TL
2TL 4TL s hare pric e 3TL 4TL s har e pr ic e constant credit amount constant credit amount, leveraged capital gain
Spot(t+1)=7TL Strike:4TL Barrier:4.5TL Exchange Rate:1:1 Cost of Carry:0.03TL Certificate(t)=3.04TL S(t)=6TL S(t+1)=7TL
Garanti L.cert.(t+1) Bid Ask
Market Maker 3.0 3,04
Garanti L Cert.(T) Bid Ask
Market Maker 2.0 2,03
Delta=0.97/1=0.97 apprx. 1
Omega=0.48/0.17=2.82 apprx 3
Leverage:6/2.03=2.95 apprx 3
Omega=Leverage X Delta
Main features of Turbo Certificates
Example 2: Turbo Long Garanti Certificate S(t+1)=7TL
0.97 TL (48%) increase in certificate price
1TL
e
2TL
ic
e
constant credit amount, leveraged capital gain
Spot(t+1)=7TL
Strike:5TL
S(t)=6TL
S(t+1)=7TL
Garanti L.cert.(t+1) Bid Ask
Market Maker 2.0 2,03
Garanti L Cert.(T) Bid Ask
Market Maker 1.0 1,02 0.98 TL (96%) increase in certificate price Delta=0.96/1=0.96 apprx. 1 Omega=0.96/0.17=5.65 apprx 6 Leverage:6/1.02=5.88 apprx 6 Omega=Leverage X Delta
Main features of Turbo Certificates
Example 3: Turbo Long Garanti Certificate Strike=5TL
Spot(t+2)=4.5TL
Strike:4TL Barrier:4.5TL
Exchange Rate:1:1
Garanti L.cert.(t+2) Bid Ask
Market Maker --
--Garanti L Cert.(t) Bid Ask
Market Maker 2.0 2,03
Delta=1.53/1.5 apprx. 1
Omega=0.75/0.25 apprx 3
Leverage:6/2.03 apprx 3
Omega=Leverage X Delta
Main risks about Turbo Certificates
Example 2: Turbo Long Garanti Certificate S(t+2)=4.5TL Knock out risk
Certificates are expired Quotes are delisted
0.5TL Payment
1.53 TL Loss (-%76) Sold share: 4.5TL 1.5 Loss (-%25)
Spot(t+2)=5.5TL
Strike:5TL Barrier:5.5TL
Exchange Rate:1:1
Garanti L.cert.(t+2) Bid Ask
Market Maker --
--Garanti L Cert.(t) Bid Ask
Market Maker 1.0 1,02
Delta=0.52/0.5 apprx. 1
Omega=0.50/0.08 apprx 6.3
Leverage:6/1.020=5.9 apprx 6
Omega=Leverage X Delta
Main risks about Turbo Certificates
Example 3: Turbo Long Garanti Certificate S(t+2)=5.5TL Knock out: Leverage risk
Certificates are expired Quotes are delisted
Main risks about Turbo Certificates
Currency risk
Senaryo Petrol F. (USD) Dayanak VarlıkF.değişim% Kullanım fiyatı Dönüşüm Oranı USD/TL Kurdaki değişim%
Sertifika Teorik fiyat (TL) Sertifikadan elde edilen kar/zarar% Dayanak Varlığa Yatırımdan elde edilen kar/zarar% T günü 93 - 78.32 0.1 1.791 0 2.63 0% -USD/TL Petrol 97.6 5% 78.32 0.1 1.791 0% 3.45 31% 5% USD/TL Petrol 97.6 5% 78.32 0.1 1.25 -30% 2.42 -8% -27% USD/TL Petrol 97.6 5% 78.32 0.1 2.32 30% 4.47 70% 36% USD/TL Petrol 88.5 -5% 78.32 0.1 1.791 0% 1.82 -31% -5% USD/TL Petrol 88.5 -5% 78.32 0.1 1.25 -30% 1.28 -51% -33% USD/TL Petrol 88.5 -5% 78.32 0.1 2.32 30% 2.36 -10% 23% USD/TL Petrol 93 - 78.32 0.1 1.25 -30% 1.84 -30% -30% USD/TL Petrol 93 - 78.32 0.1 2.32 30% 3.41 30% 30% Senaryo Petrol F. (USD) Dayanak Varlık
F.değişim% Kullanım fiyatı Dönüşüm Oranı USD/TL Kurdaki değişim%
Sertifika Teorik fiyat Teorik fiyattaki değişim% Dayanak Varlığa Yatırımdan elde edilen kar/zarar% T günü 93 - 112.32 0.1 1.791 0 3.46 0% -USD/TL Petrol 97.6 5% 112.32 0.1 1.791 0% 2.64 -24% -5% USD/TL Petrol 97.6 5% 112.32 0.1 1.25 -30% 1.85 -47% 27% USD/TL Petrol 97.6 5% 112.32 0.1 2.32 30% 3.42 -1% -36% USD/TL Petrol 88.5 -5% 112.32 0.1 1.791 0% 4.27 23% 5% USD/TL Petrol 88.5 -5% 112.32 0.1 1.25 -30% 2.99 -14% 33% USD/TL Petrol 88.5 -5% 112.32 0.1 2.32 30% 5.53 60% -23% USD/TL Petrol 93 - 112.32 0.1 1.25 -30% 2.42 -30% 30%
Turbo Uzun WTI Sertifikası Döviz kuru simulasyonu
Main risks about certificates
Issuer risk
S&P:
− Long term inv. : A
− Short term inv. : A -1
−MOODY’S:
− Long term inv. : A3
Sertifikalara ilişkin iletişim adresleri
−www.sertifika.erste.com.tr
−Erste Menkul Değerler A.Ş. −(212)371 2500
