Valuation
- Equity & Commodity linked Derivatives Valuation
- CB, BW and EB
- Interest Rate linked Derivatives
- Credit linked Derivatives
Overview
- Financial instruments that are linked to equity, equity index, currency and commodities and cash flow is determined by the future value of underlying asset
- Convertible bond(CB), exchangeable bond(EB) and bond with warrants are included. Those have been converted into the issuer’s stock or exchanged with another’s stock or given rights to buy stocks. The value of the option is determined by issuer’s credit and expected value of underlying stocks
Services
| Type | Structure | |
|---|---|---|
| ELS(ELB)/DLS(DLB) | Step Down | Redeeming promised yield additional to principal if underlying asset’s price is above specific range on AutoCall determination date |
| Step Up | Redeeming promised yield additional to principal if underlying asset’s price is below specific range on AutoCall determination date | |
| Monthly PMT | Redeeming principal when underlying asset’s price is above specific range on AutoCall determination date and repaying promised interest on monthly basis | |
| Knock-Out | Redeeming principal with additional yield from the underlying asset when the underlying asset’s price is not off the certain range. Otherwise redeeming principal with promised yield | |
| ELW | Cliquet | Underlying asset is being observed on every determination date (monthly in general) and accumulated yields are redeemed upon maturity |
| Others | Back-to-back hedging transactions and other OTC derivatives | |
PROCESS / Methodology
PROCESS
Methodology
- Closed form Solution, Binomial Tree, Monte-Carlo Simulation, FDM
Additional Services
- Mark to market pricing
- Separation of embedded derivatives
- Pre-evaluation reports
- Footnote disclosure for Level Ⅲ
Overview
- Type of securities that are linked to equities wit options such as CB, EB, BW
- Option values will be evaluated according to the bond’s yield rates and future value of the underlying equity
Services
| Category | Structure |
|---|---|
| Convertible Bond (CB) | Type of debt security consisting of a straight bond and an embedded option to which can be CONVERTED into a predetermined number of SHARES of common stock in the issuing company |
| Exchangeable Bond(EB) | Similar to CB but instead of converting, had the embedded option to EXCHANGE the bond for the STOCK of a company other than the issuer |
| Bond with Warrant(BW) | Bond with warrant whose holder has responsibility to claim newly issued stocks at predetermined price where such warrants can be detached |
PROCESS / Methodology
PROCESS
Methodology
- Binomial Tree, Monte-Carlo Simulation, Hull-White Trinomial Tree
Additional Services
- Mark to market pricing
- Separation of embedded derivatives
- Pre-evaluation reports
- Footnote disclosure for Level Ⅲ
Overview
- The evaluation of interest rate-linked derivatives is divided with plain vanilla floating rate note and structured products and structured note.
- Pure FRN has an interest payment structure as short/long term basis rate plus spread and structured Note is a bond combined with derivatives such as swap and interest rate options
- Interest rate derivatives is divided into Swap (IRS, CRS, KTB Lined Swap, Exotic Swap and FX Swap) and option products (Cap, Floor, Swaption and Exotic Option)
Services
| Category | Types |
|---|---|
| FRN | Issued in Domestic and Foreign markets such as FRN related to short/long term interest rate, Inverse FRN, Quanto FRN, Digital, Range Accrual Note, Spread Accrual Note, Power Spread, Steepener, Reverse Convertible and many other embedding options |
| Swap | Plain Vanilla Swap (IRS, CRS, FX Swap), Amortizing Swap, Structured Swap, and KTB Linked Swap |
| Option | Typical options such as Cap/Floor, Swaption and exotic options embedding exotic interest payment structure |
PROCESS / Methodology
PROCESS
Methodology
- Forward Rate Approach, Hull-White 1F/2F Monte-Carlo Simulation
Additional Services
- Mark to market pricing
- Pre-evaluation reports
- Risk-index calculation and simulation report
- Embedded option analysis
- Seminars on newly developed financial products
Overview
- Derivatives whose cash flows are determined by credit standing or events of reference assets and divided into swap, option and bond as to whether its investors have up-front payment or not
Services
| Type | Structure | Type | Structure |
|---|---|---|---|
| CDS | A Credit derivative contract between two counterparties, where the “buyer” pays periodic payments to the “seller” in exchange for the right to a payoff in case of default or credit in respect of reference entity | CLN | Structured security with embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors. The issuer is Not Obligated to repay the debt if a specified event occurs |
| Basket Swap | Different from CDS in terms of number of reference entities being more than one and payoff is occurred when the number of occurred credit events will be more than as defined in pre-agreement. | Basket CLN | Similar to simple CLN except that credit risk is structured as Basket CDS form |
| Portfolio Swap | The number of underlying entities is between 50 and 100 and divided into Senior, Mezzanine and Equity according to risk averseness of investors | Cash CDO | Cash CDOs involve a portfolio. Ownership of the assets is transferred to the legal entity known as the SPV issuing the CDO’s tranches. The risk of loss on the assets is divided among tranches in reverse order of seniority |
| CDS Index | Credit derivative used to hedge credit risk or to take a position on a basket of credit entities. | Synthetic CDO | Instead of owning cash assets, synthetic CDOs gain credit exposure to a portfolio of fixed income assets without owning those assets via credit default swaps |
| CMCDS | Similar to standard CDS except that it pays a floating credit spread using traded CDS as the reference index. It can be combined with CDS on the same entity to take only spread risk and not default risk on an entity | Synthetic CDO2 | CDOs primarily backed and restructured by tranches issued by other CDOs |
PROCESS / Methodology
PROCESS
Methodology
- HW Credit Model, Default Time Simulation etc
Additional Services
- Mark to market pricing
- Pre-evaluation reports
- Risk-index calculation and simulation report
- Embedded option analysis
- Seminars on newly developed financial products