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Structured
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Contents 1
Contents
Introduction 2 Commodity-linked Products 46
Structured product design 4 Wedding Cake 46
Why use structured products? 5 Commola 48
How do structured products work? 6 Athena Copper 50
Structured products at your service 8
How to use this handbook? 9 FOCUS: Hybrid structured products 52
Hybrid Products 54
Growth Products 10
Profiler 54
Magic Asian 10
Orion 56
Captibasket 12
Himalaya 14
FOCUS: Fund Derivatives 58
Lookback 16
Starlight 18 Fund-linked Products 60
Titan 20 CPPI on Mutual Funds 60
Certificate Plus 22 ODB on Alternative Investment 62
Certificate Best-of 23
Systematic Strategies 64
Income Products 24 Harewood Money Market Trend 64
Ariane 24 Buy-write 66
Cliquet 26
Coupon driver 28 Appendix 68
Stellar 30 Options 68
Predator 32 Long / Short Position 69
Neptune 34 Call / Put 70
Reverse Convertible 36 Call Spread 71
Put Spread 72
Market Neutral Products 38 Straddle 73
Galaxy 38 Strangle 74
Absolute 40 Collar 75
Barrier 76
FOCUS: Efficient Frontier 42 Asian 77
Wrappers 78
FOCUS: Commodity-linked
Structured Products 44
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
Introduction 2
Introduction
BNP Paribas is one of the world’s ten largest banks1, with total assets of
$1.26 trillion and 138,000 employees in 88 countries. A truly global bank,
BNP Paribas serves 14,000 corporate and institutional clients and 20 million
retail customers around the world.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
Introduction 3
1
According to the Forbes Global 2000 league
tables, February 2006.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
¢ Suitability ¢ Bullish
¢ Previous Experience ¢ Bearish
¢ Product Preference ¢ Sideways
¢ Internal Constraints ¢ High Volatility
¢ Target Fees ¢ Low Volatility
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
Capital protected
equity bonds
Government Bonds
Risk
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
How do Structured
Products Work?
In its most basic form, an equity derivative Zero coupon bond
structured product consists of a zero-coupon
Value
bond, purchased at a discount, and an option.
At maturity, the zero-coupon bond will be
redeemed at par, thereby providing capital
protection to the investor.
100
<100
Maturity
The option, which offers the investor participation Call option value at expiration
in the equity market, pays out the performance of
the underlying at maturity, if it is above the strike Value
100
<100
Strike Price
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
Example
An investor wants to invest USD 100 over five Assuming a five-year S&P 500 Call option
years, with full capital protection, and exposure costs 23.6, and adding 2 for administration and
to the S&P 500 index upside. margin costs, the investor will benefit from an
80% [(20.9 – 2)/23.6] participation in the
With a five-year US Treasury rate at 4.8,
S&P 500 upside, while having 100 of his capital
a five-year zero coupon bond is worth 79.1,
protected at maturity.
i.e., 100 in five years is worth 79.1 now.
That leaves the structure provider with 20.9
(100 - 79.1) to purchase an option on the
S&P 500 and pay for administration costs and
commission.
Option plus zero coupon ¢ Optimistic Scenario – if the S&P 500 goes up
by 40% over the five years, the investor will
Value
200 achieve a return of 32% (80% x 40%) on top
of his initial capital. Redemption at maturity
= 132% of principal.
0
1 2 3 4 Maturity
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
Structured Products
at your service
Equity derivatives have continuously evolved Structured Products from BNP Paribas offer
since 1992, both in terms of structures (complex investors an alternative to traditional investment
combinations, multi-underlyings and exotic vehicles whatever the investment objective,
features) and form (adapting to new tax laws). structured products can provide an improved
solution over traditional investments.
Recently, volatile equity markets and lower interest
rates have forced structured products providers to Here we present the structured products that we
be even more innovative. believe serve your needs as an investor:
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G E N E R A L F O R E W O R D
How to use
this handbook
Market-scenario indicator Risk Indicator
1
Means the product is best suited for moderately Means the product offers full capital protection
bearish markets
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Magic Asian 10
Growth Products
Growth structured products are positioned as efficient alternatives to direct
equity investments, offering investors the highest possible market exposure
with limited or no downside risk.
Magic Asian
Principles Benefits
The Magic Asian structure is linked to a basket ¢ Easy high return for moderate performances.
¢ No cap on performances.
of underlyings, providing full capital protection
at maturity.
¢ A fixed coupon is paid on the first year,
At maturity, the final payoff is the average
giving time to the markets to recover.
of the past performances, which are calculated
as follow: ¢ Asian feature (see Appendix) to avoid the
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Magic Asian 11
Example Risks
¢ An investor purchases a 5-year Magic Asian on ¢ Investors might not benefit of the whole
a basket of 20 shares, with semesterly fixings. rise of the underlyings, due to the averaging
For each fixing, the basket performance of performances.
140
Performance
recorded: +35%
130
120
110 Performance
recorded: +20%
100
90
Performance
recorded: -16%
80
70
Share 1 Share 2 Share 3
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Captibasket 12
Captibasket
Principles Benefits
The Captibasket structure allows the investor ¢ Optimisation of the performance of shares
to get exposure to an underlying’s upside up with a cyclical performance, avoiding “bell
to a given level. curves” (i.e. a sharp rise followed by a sharp
fall) thanks to the lock-in system.
If, at any time, the underlying increases above
a pre-determined barrier, its performance is ¢ Opportunity to benefit from a temporary
frozen at that level, no matter how sharply it rebound.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Captibasket 13
Example Risks
¢ An investor purchases a 5-year Captibasket ¢ Investors may not benefit from the whole rise
on a basket of 8 shares, offering 100% of the underlying shares.
Captibasket performance
200
Performance lock-in at +45%
180 Performance
Return = +45%
160
140
120 Performance
Return = +45%
100
Performance
Return = +10%
80
60
Stock 1 Stock 2 Stock n
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Himalaya 14
Himalaya
Principles Example
Himalaya is a structure providing exposure to ¢ An investor purchases a 5-year Himalaya
a basket of several different underlyings, 100% indexed on a basket of 10 shares.
Risks
Benefits ¢ Once a performance is locked, any additional
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Himalaya 15
Himalaya scenarios
Optimistic scenario
Locked-in
Months Share 1 Share 2 Share 3 Share 4 Share 5 Share 6 Share 7 Share 8 Share 9 Share 10 Performance
6 18% 15% 10% 8% -4% 2% 0% -1% 5% -5% 18%
12 30% 20% 20% 2% 13% 15% 7% 15% 5% 30%
18 37% 36% 16% 20% 18% 14% 25% 10% 37%
24 45% 30% 22% 24% 18% 23% 12% 45%
30 44% 39% 32% 28% 28% 8% 44%
36 50% 48% 34% 32% 15% 50%
42 54% 41% 44% 24% 54%
48 55% 52% 28% 55%
54 67% 20% 67%
60 45% 45%
FINAL PERFORMANCE Equally weighted average of performances 45%
Pessimistic scenario
Locked-in
Months Share 1 Share 2 Share 3 Share 4 Share 5 Share 6 Share 7 Share 8 Share 9 Share 10 Performance
6 20% 5% -5% -3% -8% -10% -15% -2% -10% -10% 20%
12 11% -10% -10% -15% -20% -4% -23% -15% -15% 11%
18 -5% -8% -16% -14% -10% -14% -18% -16% -5%
24 -5% -12% -9% -6% -8% -20% -20% -5%
30 -10% -11% -13% -12% -14% -19% -10%
36 -10% -10% -11% -14% -15% -10%
42 -5% -6% -13% -17% -5%
48 -5% -15% -20% -5%
54 -5% -10% -5%
60 -15% -15%
FINAL PERFORMANCE Minimum average performance: 0% 0%
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Lookback 16
Lookback
Principles Benefits
The Lookback mechanism records the highest ¢ Optimised geared performance over the last
performance of an underlying over either years of investments.
Generally speaking, at maturity, the redemption performance and make the most of each share
premium is either the average of the best in the underlying basket.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Lookback 17
Example Risks
¢ An investor purchases a six-year lookback on ¢ Investors might not benefit from the whole
the FTSE 100, with monthly observation. rise of an individual share, due to the capped
Lookback scenarios
250
Redemption amount = 100% +90%* 108% = 187% Capital
200
150
100
50
Redemption amount = 100% Capital
0
Optimistic Scenario Pessimistic Scenario
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Starlight 18
Starlight
Principles Benefits
The Starlight structure offers the investor an ¢ Possible early redemption to avoid capital
early redemption at an attractive annual yield lock up over the whole period.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Starlight 19
Example Risks
¢ An investor purchases a 6-year Starlight on ¢ Investors might not benefit from the whole
the FTSE 100. rise of the underlying in case of very bullish
110% of its initial level, an early redemption ¢ Capital is protected only if the product is
occurs with a 20% coupon. Similar early held until maturity.
redemption features for year 4 and 5.
Starlight investment
Initial
Investment Year 3 Year 4 Year 5 Maturity
100 FTSE has risen FTSE has risen FTSE has risen Receive 100%
by 10% or more. by 15% or more. by 20% or more. of capital
growth in the
Receive 20% Receive 30% Receive 40% FTSE 100,
return and return and return and with final year
closure of closure of closure of averaging.
investment investment investment
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Titan 20
Titan
Principles Benefits
The Titan structure enables investors to ¢ Titan offers the opportunity to over-perform
participate in an underlying at a rate equal to equities if markets are booming.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Titan 21
Example Risks
¢ An investor buys an 8-year Titan, with ¢ If markets are moderately bullish, investors do
minimum 100% up to 200% participation in not benefit from the leverage effect.
Titan performance
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Certificate Plus 22
Certificate Plus
Principles Benefits
The Certificate Plus structure provides 100% ¢ Always better performance than the
participation in the underlying performance underlying: Certificate Plus will always at
with an ensured minimum return, provided least track the underlying’s performance with
the underlying has never reached a knock-out a potential to outperform it due to the ensured
barrier during the investment period. minimum return.
Otherwise, Certificate Plus pays back the ¢ High potential redemption, even if the
underlying performance at maturity. market does not perform.
Additional benefits
¢ Uncapped exposure to a well-diversified
basket.
¢ Potentially 100% of the best performer
on top of initial capital.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
G R O W T H P R O D U C T S
Certificate Plus 23
Example Risks
An investor buys a 3-year Certificate Plus in ¢ Limited capital protection - if the price of
Euro on DJ Eurostoxx 50, with a 10% minimum the underlying decreases below the barrier
return and a 65% down barrier. at any time during the life of the product,
the redemption at maturity may be less than
the original amount invested.
140
130
120
Return = +38%
110
100
Return = -8%
90
80
70
60
Return = +10%
50
Optimistic Neutral Pessimistic
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Ariane 24
Income Products
Income structured products are high-yield and alternatives to fixed income
investments. They usually redeem principal at maturity and offer an
equity-linked coupon, which can be fixed or conditional, or a combination
of both.
The structures are designed for investors seeking above-market returns and
100% capital protection in a climate of market uncertainty. More dynamic
structures offer less risk-averse investors enhanced returns in exchange for
lower principal protection.
Ariane
Principles Benefits
The Ariane structure pays at each specified ¢ High coupons, still above risk-free rates even
date a minimum fixed coupon plus a variable if one or two shares drop significantly.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Ariane 25
Example Risks
¢ An investor purchases a 5-year Ariane on ¢ In case markets drop significantly and
a basket of 20 shares, offering a variable volatility goes up, the investor may only get
coupon of up to 10% each year, depending the minimum protected coupons.
Ariane investment
Coupon paid
each year
12%
10%
8%
6%
4%
2%
0%
0 2 2 3 4 More than 4
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Cliquet 26
Cliquet
Principles Benefits
The Cliquet structure returns at maturity the ¢ By locking each month’s performance,
sum of the periodic positive performances the Cliquet structure protects the investor
of the underlying or basket of underlyings, from a last-minute downturn of the
with a periodic restriking of the reference level. underlying.
There is a possibility of a floor and a cap of ¢ The Cliquet structure can have high
the performances. positive returns even if the underlying
has always traded below its initial level,
Capital is fully protected at maturity.
thanks to the periodic restriking.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Cliquet 27
Example Risks
¢ An investor purchases a 2-year Cliquet on ¢ Investors might not benefit of the whole rise of
Dow Jones Eurostoxx Select Dividend 30 Index. the underlying, due to the periodic restriking.
140
Two top
performances
replaced by
120 the average Cliquet’s final
performance
+46%
100
Underlying’s final
80 performance
-6%
60
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Coupon Driver 28
Coupon Driver
Principles Benefits
The Coupon driver structure pays a yearly ¢ Coupons are floored at 0% and uncapped.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Coupon Driver 29
Example Risks
¢ An investor purchases a 5-year Coupon Driver, ¢ Investors might not benefit from the whole
linked to a basket of 20 shares. The 17 best rise of the underlyings, due to the fixed
performing shares in the basket are set at performance for the best performing assets.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Stellar 30
Stellar
Principles Benefits
The Stellar structure is designed to boost ¢ High periodic and easily achievable coupon
long-term portfolio returns. It offers enhanced payments.
The variable equity-linked annual coupons ¢ Potentially high variable coupons – even in
are equal to the capped positive individual moderately growing markets.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Stellar 31
Example Risks
¢ An investor buys a 5-year Stellar on a basket ¢ Any increase in the price of the underlying
based on 15 blue chips. beyond the cap will not increase the annual
basket’s performance each year, each share ¢ Capital is protected only if the product is held
being floored at 2.5% and capped at 7%. until maturity.
Stellar performance
Percentage
increase / decrease Coupon
of underlyings value (%)
140 30
130 25
120 20
110 15
100 10
90 5
80 0
1 2 3 4 5
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Predator 32
Predator
Principles Benefits
The Predator structure pays a fixed annual ¢ Predator has a security locking-in mechanism
coupon during the first X years and then a in order to lock-in any rise in the underlying
variable annual coupon for the remaining shares until investment terminates. If a share
Y years. performance doesn’t go down versus its initial
level, its performance is locked-in at a fixed
At the end of each variable coupon year, each
level until the end of the investment.
share whose performance is equal or better
than its initial level is locked-in at a fixed ¢ There is no re-strike, as the performance is
performance until the end of the investment. measured against its initial level.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Predator 33
Example Risks
¢ For a 5-year Predator based on a basket of 20 ¢ Investors might not benefit from the whole
shares, a fixed 5%-coupon is paid at the end of rise of the underlyings, due to the locking-in
the first year. The fixed performance to which mechanism.
Predator performance
100
15%
98
96
10%
94
92
5%
90
88 0%
1 2 3 4 5
Years
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Neptune 34
Neptune
Principles Benefits
During the first phase of X years, the ¢ Fixed annual coupons for the first X years.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Neptune 35
Example Risks
¢ An investor purchases a 6-year Neptune ¢ Possibility of no cash-flow during the second
indexed on FTSE 100, with a 8% fixed coupon phase with no coupon and no early redemption
the first year, 8% the following years if FTSE if the index performs poorly against its initial
100 closes at or above its initial level. level.
Neptune investment
120
Total redeemed = 124% Capital Invested
40
Total redeemed = 71+8% = 79% Capital Invested
20
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Reverse Convertible 36
Reverse Convertible
Principles Benefits
A Reverse Convertible is a short-term investment ¢ Short term investment – maturities range from
combining a high coupon with exposure three months to two years.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Reverse Convertible 37
Example Risks
¢ An investor purchases a 9-month Reverse ¢ Limited capital protection – if the price of
Convertible on Lukoil, with a 12% guaranteed the underlying decreases over the life of the
coupon and a continuous down barrier at 70% product, the number of shares awarded may
of initial performance. be less than the original amount invested.
¢ Optimistic Scenario – Lukoil never breached ¢ Any increase in the price of the underlying
the barrier located at 70% of its initial level, will not increase the return of the Reverse
and is up by 6% at maturity. Investors receive Convertible.
a 12% coupon per annum plus 100% of the
principal invested.
140.00
120.00
100.00
Optimistic Case
80.00
Pessimistic Case
Barrier
60.00
40.00
20.00
9 months
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Galaxy 38
Galaxy
Principles Benefits
The Galaxy product delivers full annual ¢ Profits in volatile market conditions.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Galaxy 39
Example Risks
¢ An investor purchases a 5-year Galaxy on a ¢ If the worst share is flat at each year-end,
basket of 15 blue chips. final return is close to zero.
¢ Each year, a coupon equal to the lowest ¢ Investors give up the performance of the
absolute performance, floored at 2.5%, is paid. remaining shares.
¢ For clarity, the graph below only comprises ¢ Capital is protected only if the product is
three shares. held until maturity.
Galaxy performance
Shares Coupon
value paid
140 14
12
120
10
100
8
80 6
4
60
2
40 0
1 2 3 4 5
Years
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Absolute 40
Absolute
Principles Benefits
The Absolute structure delivers full participation ¢ Benefits from all market trends, up or down
in the absolute performance of an underlying and is thus tailored for uncertain markets,
versus its initial level, provided the underlying for example when the investor does not
doesn’t fall below a pre-determined barrier. know if the market increase will go on or
if a correction is to occur.
At maturity, if the underlying does not breach
the barrier the investor gets his capital back plus ¢ A very low barrier level until which capital
the absolute performance of the underlying, is fully protected.
that is to say the distance from its initial level.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
I N C O M E P R O D U C T S
Absolute 41
Example Risks
¢ An investor purchases a 5-year Absolute on ¢ If the performance falls beyond the barrier,
the Nikkei, with a 70% down-barrier. the investor suffers capital loss.
Absolute investment
110%
Redemption amount = 112% Capital
100%
Redemption amount = 117.5% Capital
90%
Scenario 1
Scenario 2
80% Scenario 3
Redemption amount =
87% Capital Barrier (70%)
70%
60%
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
Efficient Frontier 42
7.0%
Emerging Equities
6.0%
Eurostoxx
5.0% x
4.0%
Eurobond
3.0%
2.0%
1.0%
0.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Volatility
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
Efficient Frontier 43
4.0%
3.5%
3.0%
4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
Volatility
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
FOCUS - Commodity-linked
structured products
Contrary to financial assets, commodities are not Different strategies, from the simplest to the most
homogenous in terms of quality or grade, and a complex, can be implemented to trade views on
variety of references may exist to price real assets commodities. BNP Paribas (Crude Oil House of the
(e.g. crude oil, refined products such as gasoil, Year 2005, #2 OTC Derivative Dealer on US Natural
gasoline, jet fuel, etc). Therefore a range of Gas 2004, #1 Crude Oil Future Broker on the IPE
commodity derivative instruments has been created 2004) has developed the capacity to structure
on standardised commodities that trade on many products that allow investors to receive any
exchanges (such as the NYMEX or the IPE for payoff linked to commodity assets - they can be
oil prices). adapted to specific risk profiles and offer full or
partial principal protection.
The most liquid underlyings on which
BNP Paribas can construct derivative instruments The first range of products offers pure commodity
are the following: energy derivatives (crude oil exposure. These products are designed for investors
and products, natural gas, coal, electricity), seeking to:
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
With BNP Paribas’ Commodities Stellar, you Investors can choose between many different
receive variable annual coupons linked to a structures on multi-asset class baskets to
diversified basket of equally weighted commodities. achieve efficient diversification and optimise
Coupons are capped at a high level but this the risk-return, depending on their particular
structure can offer minimum returns. objectives. For example, BNP Paribas proposes
exposure to the best investment strategy out of
Another range of solutions would be hybrid
three risk-profiles through its Profiler. (see page 54)
investments embedding commodities (see Hybrid
products section). By providing exposure to assets The features of the Commodities asset class make
from different classes, hybrids offer investors the it an efficient tool for portfolio diversification and
opportunity to take advantage from the different yield enhancement. To jump on the bandwagon
economic cycles of each asset class. They provide of Commodities, investors can choose among
optimum performance in any market conditions by numerous structures to benefit from rising trends.
lowering overall portfolio volatility and achieving
diversification when the underlying assets are
loosely correlated.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Wedding Cake 46
Commodity-linked Products
Wedding Cake
Principles Benefits
The Wedding Cake structure pays a high fixed ¢ Wedding Cake is a market-neutral product,
coupon at maturity if the underlying commodity which pays a high coupon in flat markets,
has always traded within a pre-determined clearly over-performing the underlying in
range of prices during the investment. that case.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Wedding Cake 47
Example Risks
¢ An investor purchases a 2-year Wedding ¢ High volatility of the underlying will result in
Cake, which pays a 12% coupon at maturity if a low coupon being paid.
14%
12%
10%
8%
6%
4%
2%
0%
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Commola 48
Commola
Principles Benefits
The Commola structure is linked to a basket ¢ The Commola structure surely over-performs
of commodities. the basket, thanks to the different gearings
for good and bad performers. The condition
At maturity, well-performing assets are
for over-weighting a share is generally for it
over-weighted, while poor-performing ones
to perform better than its initial level, while
are under-weighted.
negative performances are under-weighted.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Commola 49
Example Risks
¢ An investor purchases a 7-year Commola ¢ Capital is protected only if the product is held
on Aluminium, Copper, Nickel, Oil and an until maturity.
Agricultural index, with a quarterly Asianing
over the last two years of the investment.
Commola investment
300
Oil
250 Asianed Oil
Aluminium
200 Asianed Aluminium
Agricultural Index
150
Asianed Agr.
100 Copper
Asianed Copper
50 Nickel
Beginning and end of the asianing period
0 Asianed Nickel
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Athena Copper 50
Athena Copper
Principles Example
The Athena Copper offers a high coupon linked Example 1 – Early Exit
to the performance of the copper market.
The copper market rises strongly.
The performance of the copper is compared to
Early termination at the first observation
its initial level at four quarterly observation
point, as the underlying is above the strike.
points.
Investor receives his capital back plus a coupon
Should the underlying over-perform a strike of 3% (1*3%) after one quarter – this is
level at any observation point, the product equivalent to a 12.55% annual coupon.
terminates early, returns 100% of the capital
Example 2 – High Coupon
and pays a high coupon, here equal to 3%
every quarter. Markets drop initially, but recover. No early
termination but, as the underlying finishes
At maturity, as long as the value of the underlying
above the strike at maturity, the investor
is above 70% of its initial level, capital is 100%
receives his capital back plus a high 12%
protected.
(4*3%) coupon.
Otherwise, final redemption is equal to the initial
Example 3 – Capital Protection
investment multiplied by the ratio of the final
commodity price to the initial commodity price. The copper market drops. No early termination
occurs, as the underlying fails to beat the
strike at any observation point. The final level
Benefits at maturity is above the barrier. The investor
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
C O M M O D I T Y - L I N K E D P R O D U C T S
Athena Copper 51
Risks
¢ Limited capital protection – if the price of ¢ A fixed contingent coupon – any increase in
the underlying decreases over the life of the price of the underlying beyond the strike level
product, the final redemption may be less will not increase return further.
until maturity.
120 120
Early Termination
110
1
110
1
100 2 100 2
3 3
90 90
4
4
80 80
70 70
60 60
50 50
120 120
110 110
1 1
100 2 100 2
3
3
90 90 4
4
80 80
70 70
60 60
50 50
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
FOCUS - Hybrid
structured products
Background Benefits
Over the last four years Hybrids have seen an Among others, multi-underlying exposure allows
explosive growth in demand from a broad range the following:
Hybrid structures are derivatives based on lower cost, and guard against ‘adjacent risks’
multiple and distinct asset classes, such as interest such as inflation and foreign exchange risk.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
As a major derivatives house, and winner of the Working in close partnership, BNP Paribas’
Structured Products Hybrid House of the Year hybrid groups in Fixed Income, Commodities and
Award 2005 and 2006, BNP Paribas has developed the Equities & Derivatives have created a wide
various hybrid payoffs to address any investor’s range of innovative structures allowing investors
objective: to benefit from the diffferent market cycles across
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
H Y B R I D P R O D U C T S
Profiler 54
Hybrid Products
Profiler
Principles Benefits
With the Profiler structure, three different ¢ The Profiler structure ensures optimum market
risk-profiled portfolios are composed from a exposure: whatever the market fluctuations,
set of different asset classes. At maturity, investors automatically benefit from the best
the investor gets full participation in the performing management strategy at term.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
H Y B R I D P R O D U C T S
Profiler 55
150
Aggressive Balanced Defensive
Equities 50% 25% 15% 130
50
Aggressive = +3% Balanced = +13.5% Defensive = +17.5%
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
H Y B R I D P R O D U C T S
Orion 56
Orion
Principles Benefits
The Orion structure is an example of combined ¢ Receive an income in excess of current money
strategy hybrid products. markets until the fall of the first underlying.
It pays out a conditional fixed coupon ¢ Switch to equities when short-term rates
periodically, provided short-term interest reflect positive growth prospects in equity
rates stay below a certain level, and switches markets, i.e. benefit from a rally in equities
to an equity-linked payoff once this level is at the earliest stage.
The Orion structure also exists with a equities when commodities, assets traditionally
commodity underlying instead of short-term negatively correlated with equities, are following
interest rates. The conditional fixed coupon a downward path, i.e. when equities should be
is thus paid as long as the commodity does going up.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
H Y B R I D P R O D U C T S
Orion 57
Example
¢ An investor purchases an 8-year Orion, which
pays 4% annual coupons as long as WTI does
not breach a 85% down-barrier and then
switches to an equity basket.
Orion investment
180
160
140
120
100
80
60
40
YEAR 1 2 3 4 5 6 7 8
SWITCH No No No No Yes
COUPON 4% 4% 4% 4%
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
Fund Derivatives 58
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F O C U S
Fund Derivatives 59
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F U N D - L I N K E D P R O D U C T S
CPPI 60
Fund-linked Products
CPPI
Principles
Constant Proportion Portfolio Insurance (CPPI) Over the life of the investment, exposure to
structures are suitable for investors looking to the performance of the active asset may climb
boost their investments without putting capital to over 100%. This exposure depends on the
at risk. CPPIs actively allocate assets over time cushion (or ‘distance’) between the basket
to achieve maximum performance and safety value and a reference level, usually bond curve.
of capital. This dynamic investment strategy If the value of the basket drops and, as the
facilitates greater exposure to active assets basket approaches the level of the reference
when markets rise, and overweights defensive level, the dynamic basket principle allocates an
assets when markets fall. increasing proportion of assets from active to
defensive assets. Conversely a strong basket
CPPI offers 100% capital redemption at
performance can increase the basket’s asset
maturity plus 100% of a basket’s positive
allocation in favour of the active asset.
performance. The basket is composed of an
active asset (usually a fund) and a defensive
asset (bonds, cash, inflation, etc.) and is
Benefits
actively managed to maximize returns while
protecting the initially invested capital. ¢ Capital protection.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F U N D - L I N K E D P R O D U C T S
CPPI 61
Example Risks
Dynamic basket principle: ¢ If the active asset falls significantly during
portfolio with variable allocation the life of the investment, there is a risk of
de-leveraging.
uncertain.
Portfolio
Value
100
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F U N D - L I N K E D P R O D U C T S
ODB 62
ODB on Alternative
Investment
Principles
An Option on a Dynamic Basket (ODB) is a Whereas the CPPI is an investment on a basket
Call option on a Dynamic Basket which of defensive and active assets (the capital
actively allocates between an alternative asset guarantee is provided by the allocation to the
(Fund of funds, Basket of Single Hedge Funds defensive asset), the ODB structure is an
or a Hedge Fund Index) and a defensive asset investment on a zero-coupon bond for the
(e.g. a money market instrument). With this capital guarantee and on a Call on a Dynamic
dynamic investment strategy, the exposure to Basket. The capital protection is thus provided
active assets is leveraged when markets are rising, outside the ODB whereas it is embedded within
and deleveraged when markets are falling. the cushion management of the CPPI.
The structure also ensures full capital protection The reference curve for a CPPI is the zero
at maturity. coupon bond reference curve in order to
protect the capital, while the reference curve
The ODB aims to maximise the exposure to
for an ODB is calculated with an algorithm.
the alternative asset when it is performing
well whilst protecting returns otherwise. The reference curve is thus not sensitive
to interest rate and, contrary to the CPPI,
ODBs can be tailor made to suit investors
the ODB structure guarantees a minimum
needs by:
allocation to the alternative asset during the
¢ Providing coupons, either paid or accumulated whole investment period.
until maturity.
Even though the allocation mechanism is similar ¢ Fixed reference line - not sensitive to interest
to the CPPI, there are two main differences. rate fluctuations.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
F U N D - L I N K E D P R O D U C T S
ODB 63
75 Reference Line
Maturity
Risks
¢ If the active asset falls significantly during
Alternative
Asset
Exposure
100%
the life of the investment, there is a risk of
de-leveraging.
ODB investment
Participation to
Investor Option linked the Alternative
to Alternative
Fund
Fund
Option linked
ODB on Al to Alternative
Fund Zero Coupon
100% Capital
Bond Protected
Zero Coupon
Bond
At inception At maturity
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
S Y S T E M A T I C S T R A T E G I E S
Systematic Strategies
Harewood Dynamic Money
Market Trend
Harewood Asset Management is a management Harewood Asset Management aims to offer
company specialising in quantitative management the best quantitative strategies and constantly
techniques. It is incorporated in France and has develops its expertise with regard to the creation
been authorised by the French regulator, AMF, and management of financial innovations.
since 2004.It is fully owned by the BNP Paribas This fully-owned BNP Paribas’ subsidiary leverages
Group (Moody’s Aa2, Standard & Poor’s AA). on the robustness of the Group’s various players
who are responsible for functions which are
Taking advantage of the French regulations (RIA,
ancillary to its management business: fund
fonds contractuels), Harewood Asset Management
administration, accounting…
can offer various UCITS funds, passively managed
structured funds (e.g. CPPI), Trackers, open-ended Harewood Dynamic Money Market Trend: a simple
UCITS, etc. innovative and competitive tool.
Harewood Asset management is able to offer a Open-ended UCITS funds, created and managed by
reactive, flexible and expert platform for fund Harewood Asset Management. Preset strategy and
management, covering the most innovative exposure, with the aim to achieve absolute returns.
management styles. The investment strategy is quantitative and based on
BNP Paribas’ privileged access to options markets.
A top-quality management benefiting from the
expertise of the BNP Paribas Group. Harewood Dynamic Money Market Fund-Trend
Fund has been especially designed to boost short-
- Fund administrator: BNP Paribas Asset Services
term returns by delivering a performance superior
- Custodian: BNP Paribas Securities Services
to the capitalised EONIA (Euro OverNight Index
- Fund Manager: Harewood AM
Average) rate by 1% in a directional market,
- Auditor: Barbier Frinault et Associés
with a minimum 1-year horizon after taking into
account fees paid to the fund.
Cash
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
S Y S T E M A T I C S T R A T E G I E S
Investment Objectives
Harewood Dynamic Money Market Fund-Trend ¢ Depending on market movements, a systematic
uses the financial markets’ volatility as a source of sale of calls/puts (bullish/bearish markets)
performance. The management team gives priority to occurs according to a preset algorithm.
absolute performance with an EONIA annualised This sale generates premiums which make the
objective of +1%. It sets up a systematic strategy fund’s value increase.
with a monitored volatility objective by operating ¢ When each option reaches maturity and
only on the most liquid markets. depending on the markets’ movements,
two scenarios are possible:
In addition, the outperformance objective is coupled
with decorrelation to equity markets. Either the value of the underlying index is superior
(respectively inferior) to the call’s (respectively
put’s) strike price: options are exercised and their
Key features
repurchase will make the fund’s value decrease.
¢ a diversification tool. Or the option is not exercised: no capital loss is
¢ a specific strategy regarding an allocation incurred and the fund will record a net gain equal
within a pocket of alternative investments. to the premium.
¢ a long-term performance weakly correlated
The invested capital is not guaranteed; nevertheless,
to equity markets.
¢ a very attractive expected return, superior
the risk profile of the fund is limited due to its low
volatility. Intervention principles are strictly defined
to an EONIA investment.
¢ Low yearly volatility.
during all the investment’s lifetime; thus there is
Mechanism Advantages
The investment strategy enables the investor to ¢ A long-lasting arbitrage strategy, independent
boost the UCIT fund’s performance against the of future investment decisions.
capitalised EONIA. It consists in setting up an ¢ Permanent availability of invested amounts
active and systematic management by taking thanks to daily liquidity.
buy-positions on short-term options indexed on ¢ An alternative to traditional money-market.
the DJ Eurostoxx 50 and the performance of which funds using a different performance source.
will be mirrored in the fund’s performance: ¢ A tool with no legal constraints since the
Harewood Money Market Fund-Trend fund is
consistent with the UCITS 3 European Directive
and authorised by the AMF.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
S Y S T E M A T I C S T R A T E G I E S
Buy-write strategy 66
Buy-write strategy
Background What is a buy-write strategy
There are many types of structured products. A buy-write strategy is a way of constructing a
Two of the most important types are growth portfolio with shares and calls in order to maximise
and income products. returns, coming from the income generated by
the dividends and the option premiums.
The former allows taking participation in an
underlying, with the pay-off being delivered With a buy-write strategy, the investor buys
at maturity and linked to the underlying’s shares and sells calls written against those shares,
performance. which are called “covered calls”.
The latter pays a regular coupon, which can It is risky because if the price of the shares go up,
be either fixed or variable. then the calls will be exercised at a strike price
below their market price. However, since the
Although income products are comfortable
investor actually owns the shares, the risk is
because of the regularity of the payments,
somehow limited, the calls are said to be covered,
returns are not very high. To produce higher
thus their name.
returns, those products are sometimes coupled
with a buy-write strategy. If the market performs well, a buy-write strategy
will most certainly under-perform, since the
This strategy originally comes from the will to
overall performance of the strategy is capped
enhance the returns generated by investing in
(the call options being exercised). However,
shares, the returns being the dividends.
if the market stays flat or performs poorly,
such a strategy will clearly over-perform.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
S Y S T E M A T I C S T R A T E G I E S
Buy-write strategy 67
Example
The UK High Income fund (maturity 6 years),
which comprises four components:
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Options 68
Appendix
Options
An option is a contract that gives its holder An option is said to be ‘at-the-money’ if the
the right, but not the obligation, to buy or sell underlying value currently equals the strike price.
a fixed number of shares, at a fixed price (strike), If the option has positive intrinsic value, it is said
on (for European options) or before (for American to be ‘in-the-money’; if it has zero intrinsic value,
options) a given date. it is ‘out-of-the-money’. A call is in-the-money
if the underlying value is above the strike price.
Options allow investors to benefit from a
A put is in-the-money if the underlying value is
leveraged participation in an asset without having
below the strike price.
to buy the asset itself.
When an investor purchases an option, the net
There are different types of options: from the
return is the difference between the intrinsic value
simplest, referred to as “plain vanilla” options,
realised from exercising the option less the option
to the most complex exotic options.
premium paid.
A European option is an option which the
On the other hand, the issuer of the option will
buyer can exercise only on a given date, i.e.
realise the difference between the option premium
the maturity date of the option.
and the intrinsic value of the option exercised.
An American option is an option which the
buyer can exercise at any time in a given Benefits of Options
¢ Higher returns as a percentage of money
period, in general between the date of entering
into the contract and the expiration date.
invested, which allows the buyer to lever his
Because an option grants the holder a right, equity exposure through the purchase of an
it has value for the holder. The option value is option.
called the premium. An option's expiration value ¢ Limited risk (for capital protection), as the risk
is its market value. is limited to the premium paid for the option
(if long the option).
¢ Possibility to make money whether the market
The difference between the strike price and
the spot price of the underlying, if positive,
goes up or down (unlike investing in shares
is called the intrinsic value of the option.
where a profit is only realised if the share price
rises), because derivatives are essentially a bet
on which way the price of the underlying
instrument is going.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Short position
On the contrary, taking a short position in an
asset means selling it. To take a short position, Underlying Value
an investor has to own/issue what he is selling
Short Put
(shares, options etc.) There is one exception,
which is short-selling. Cash-flow at maturity
0 0
K K
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Call / Put 70
Call / Put
Principles Benefits
A plain vanilla option is an option with fairly ¢ Opportunity to make a profit by buying or
standard exercise terms and no special clause. selling the underlying at maturity.
There are two types of plain vanilla options: ¢ No obligation to sell or buy if the market
calls and puts. conditions are not favourable.
Intrinsic value
Intrinsic value
Out of the money In the money In the money Out of the money
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Call Spread 71
Call Spread
-100
30 65 100 135 170
Underlying Spot
Benefits Long Call High Strike Short Call Spread
80
60
40
20
-20
-40
-60
30 65 100 135 170
Underlying Spot
Long Call Low Strike Long Call Spread
Short Call High Strike
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Put Spread 72
Put Spread
-60
30 65 100 135 170
Underlying Spot
Benefits Long Put High Strike Long Put Spread
40
20
-20
-40
-60
-80
-100
30 65 100 135 170
Underlying Spot
Long Put Low Strike Short Put Spread
Short Put High Strike
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Straddle 73
Straddle
is highly volatile.
Selling a Straddle (Short Straddle)
¢ Returns in bearish and bullish markets. Payoff at
Maturity
30
20
10
0
-10
-20
-30
-40
-50
-60
- 70
30 65 100 135 170
Underlying Spot
Short Call Short Straddle
Short Put
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Strangle 74
Strangle
profitable. 0
10
-20
30 65 100 135 170
Benefits Underlying Spot
10
-10
-20
-30
-40
-50
-60
31 66 101 136
Underlying Spot
Short Call Short Straddle
Short Put
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Collar 75
Collar
Principles Benefits
A collar (or fence) combines either a long call and ¢ Portfolio protection – the lower the
a short put, or a short call and a long put, both underlying price, the greater the return.
out-of-the-money and with the same maturity. ¢ No transaction cost – the put purchase is
financed by the sale of the call.
¢ Neutral transaction – if the underlying price
For a zero-cost-collar, strikes can be customized
so that the call premium exactly offsets the put
stays within the range of the collar.
premium.
Payoff at Maturity
20
finishes at 40, the investor will receive 47.50 –
15
40= 7.50 USD, which makes up for part of his
10
50 – 40= 10 USD loss on Share X in his portfolio.
5
His overall loss will be 10 – 7.50= 2.50 USD per
0
option (-5% return), instead of a 10 USD possible
-5
loss (-20% return), had he not purchased the
-10
zero-cost collar.
-15 ¢ Bullish scenario – If, at maturity, Share X finishes
-20 at 65, the investor will lose 65 – 52.50 = 12.50
25 35 45 55 65 75
Underlying Spot
USD on the option. However, he will still have
Option Optimistic Case Option Pessimistic Case made 65 – 50= 15 USD on the underlying in
Overall Collar Return Underlying Return his portfolio, i.e. an overall return of 2.50 USD
per share (+5% return).
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Barrier 76
Barrier
Typically, the client can select the barrier Out-of-the-money barriers – this means
rate that might be above or below the current that the option is out of the money when
market spot rate or the option strike price. the barrier is hit.
Due to the contingent nature of these options, In-the-money barriers – sometimes called
barrier options premiums tend to be lower than reverse-barrier options. These are options
for a corresponding vanilla option. that have intrinsic value (are in the money)
when the barrier is hit.
Example
A knock-in is an option that becomes Buying a Strangle (Long Strangle)
active (is “knocked-in”) if the underlying
spot reaches a pre-determined barrier
before maturity.
Spot
If the spot rate does not touch the barrier
level during the life of the option, the owner
does not receive anything. Strike
KI
Benefits
¢ Flexibility.
Time
Call isn’t KI Call is KI
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Asian 77
Asian
Principles
An Asian option (also called an average option) is Average Rate Option
an option whose payoff is linked to the average
Underlying Value
value of the underlying on a specific set of dates 200
during the life of the option. There are two basic
180
forms:
60
option except that its strike is set equal to the Annual observation Dates Time
average value of the underlying over the life of
the option.
Benefits 180
x
140 Strike
the volatility of the average being lower than
120
the volatility of the underlying price.
80
smoothes exceptional events - it enhances
60
the underlying’s upside exposure, with no risk
Annual observation Dates Time
of the investor being penalized by a market
downturn at maturity.
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
A P P E N D I X
Wrappers 78
Wrappers
A wrapper is the legal structure within which a The usual wrapper is a MTN (Medium-Term
structured product is issued. The following criteria Note), which is quite cheap and can be issued
are considered when choosing a warpper: instantly.
- Cost and speed of issuance The following table will give you the main
- Secondary market/Liquidity wrappers and their advantages / disadvantages.
- Market practice
- Tax treatment
B N P P A R I B A S E Q U I T I E S & D E R I V A T I V E S H A N D B O O K
L E G A L
Disclaimer 79
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