Absolute Return Barrier:
A type of structured note or CD that may pay interest equal to the absolute value of the appreciation or depreciation of an underlying Index. Interest is paid at maturity only if the Index levels do not breach predetermined barriers, or levels, during the observation period.
Structured notes can be indexed to a wide range of fund-linked assets, such as mutual funds and hedge funds. Alpha reflects the difference between a fund's actual performance and its expected performance (its benchmark). A positive alpha indicates that the fund has performed better than expected, given its level of risk relative to the market. Conversely, a negative alpha indicates the fund has underperformed relative to its benchmark.
American-style options are options that can be exercised at any time.
Asian options are options that use averaging in determining either the strike price or the final settlements price.
A note or CD that pays at maturity the best performer of 3 underlying portfolios. Each portfolio contains different weightings of commodities, bonds, equities and currencies. Best of Option
An option whose strike is set at the same level as the prevailing market price.
Many structured notes measure either the starting index level or the final index level(or both) using averaging. This means that the index levels used in the calculation of the product's final return are the average index levels calculated during some pre-specified period.
Also known as knock-out, knock-in or trigger options, are path-dependent options which are either activated (knocked-in)or terminated (knocked-out) if the level of the underlying asset reaches a specified trigger level (or levels) before expiry. Barrier options can be monitored continually (intra-day) or at discrete fixing times (i.e. close of business) during the lifetime of the option, or only at expiry date. Single barriers below spot are known as down-and-out for the knock-out barrier option, and down-and-in for the knock-in barrier option.
An option for which the underlying reference asset is more than one index or share. For example, an option that pays out based on the performance of the S&P 500, DJ 30 and NASDAQ 100 would be called a basket option.
Best of Option:
This is an option that is exercisable against the best performing of a given number of underlying assets.
A buffer is a non-contingent layer of protection against loss resulting from the structured products underlying asset price moving in a direction contrary to the investors investment thesis. For example, a bullish buffered return enhanced note on the S&P 500 Index might specify protection against loss on the first 10% decline in the index. The buffer would be 10% in that case.
Structured investment notes that pay a predetermined return if the underlying asset is above (or below, in bearish structures) a certain level on the relevant observation date. The notes do not guarantee return of principal at maturity but protect the investor from a certain percentage of the first loss at maturity if the underlying asset is below the initial level.
Structured investment notes that pay based on a knock-out barrier option and contain a static buffer to protect the investor against a level loss if the underlying asset is below a predetermined % of the initial level at maturity.
Buffered Return Enhanced Note:
Structured investment notes that pay based on a participation, typically greater than 100%, in the appreciation (or depreciation) of an underlying asset, up to a cap or maximum return. The notes contain a static buffer to protect the investor against the first loss in the case that the underlying asset is lower than the initial level at maturity.
Buffered Review Note:
Structured investment notes that have the potential to be redeemed at pre-determined review dates if the underlying asset is at or above a certain level. Redemption is typically made at principal plus a premium. The notes contain a static buffer to protect the investor against the first loss in the case that the underlying asset is lower than the initial level at maturity.
This is a type of derivative that gives the holder the right, but not the obligation, to purchase a set quantity of the underlying reference asset at a given price (the strike price) on or before a specified date (sometimes called the exercise date).
Callable Index Linked:
Structured notes or CD's that, if oustanding until maturity, pay a return that is calculated by multiplying any rise in the underlying index by a fixed percentage. This percentage is often called the participation or participation rate. The notes or CD’s can be called away prior to maturity at the issuer’s discretion on one or more call dates at par plus a predetermined amount.
Callable Non-Inversion Accrual:
Structured investment note or CD that pays a periodic coupon only if a given interest rate (i.e. 10 year swap rate) is greater than another rate (i.e. 2 year swap rate). Interest is not earned for each day the first underlying rate is not greater than the second (an ‘inverted’ curve.) The issuer also has the right to redeem the notes or CD at par plus accrued interest periodically.
A capital-protected type of structured note is one that provides for a minimum return at maturity at least equal to the original sum invested.
Notes will pay periodic (typically, monthly) coupons. If, (a) on any trading day from the pricing date to the final observation date, the closing price for the stock is below the barrier price and (b) the stock price on the final observation date is below the initial price, the Notes will be redeemed for a specified number of shares equal to the quotient of (x) the principal amount divided by (y) the initial price, or the cash equivalent . Otherwise, the Notes will be redeemed for the principal amount at maturity.
The return from this type of structured note is calculated from the performance of the underlying reference asset in a number of sub-periods during the term of the investment. Another term for 'cliquet' is 'ratchet'.
Consumer Price Index:
Consumer Price Index is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of the components are based on consumer spending patterns. For example, an item that makes up 20% of the average household budget would have the same weight in the CPI. The food and beverage components has a relative importance of about 16% in the CPI, so a 1% rise in food prices would contribute 0.16 points to the change in the overall CPI. The CPI covers both goods and services. Here it differs from the Producer Price Index which covers just goods. The other difference between the two indexes is that the CPI covers cost facing consumers, while PPI covers purchases and/or wholesalers. The Non Seasonally Adjusted Consumer Price Index for All Urban Consumers, or CPI-U, examines the changes in the price of a basket of goods and services purchased by urban consumers and is the most frequently used statistic for identifying inflation or deflation. The data is released monthly by the Bureau of Labor Statistics.
Contingent Coupon Barrier Note or CD:
A structure that pays a predetermined coupon only under the condition that the underlying asset(s) do not breach one or more barriers.
A structured note that has the potential to pay a return in the case that the underlying asset(s) are at a certain level on the applicable review dates. The investor is protected from downside loss unless the underlying asset breaches a barrier percentage of the initial level. If that barrier is breached, the investor has 1:1 exposure to losses in the underlying.
A bond issued by a company that may be exchanged by the holder for predetermined number of that company's shares, or at a discount to the share price at maturity. The bond contains an embedded call option on the company's equity and typically carry much lower rates of interest than traditional debt.
A measure of the degree to which changes in two variables, or the movement in price of two assets, are related. A correlation of one typically means variables are perfectly correlated (they move in the same direction to the same degree) while negative one means they are perfectly negatively correlated (in that they move in opposite directions to the same
Although different asset classes are often chosen for the varying performance in economic cycles, there is a possibility that dissimilar classes rise or fall at the same time.
A call option that is sold while simultaneously owning the underlying security on which the option is written. The technique is used primarily to increase income by receiving option premium.
A structured note or CD that pays a periodic coupon based on the year over year change in the Non Seasonally Adjusted Consumer Price Index for all Urban Consumers.
Credit Default Swap:
A bilateral financial contract in which one counterparty (the protection buyer or buyer) pays a periodic fee, typically expressed in basis points per annum on the notional amount, in return for a contingent payment by the other counterparty (the protection seller or seller) in the event of a of a credit event (default) on the part of the reference entity. The settlement mechanism may be cash or physical (securities).
Credit risk is typically viewed as the structured note issuer's (or creditor's) ability to meet principal and interest obligations. This factor must be considered when evaluating any debt instrument. Also known as default risk.
An option’s sensitivity to changes in the price of the underlying. The delta of an option changes with changes in the price of the underlying: it is lower for out-of-the money options and higher for in-the-money options, but the change is non-linear. Delta changes much faster when the option is close-to-the-money. The rate of change of delta is an option’s gamma.
An instrument whose value changes based on one or more underlying market variables, such as equity or commodity prices, interest rates or foreign exchange rates. Common types of derivatives include forwards, futures, swaps, options, and warrants.
A digital-type structured note is one that pays out a fixed amount if the underlying is above (or below) a specified level on a given date, usually the maturity date of the note.
An option that pays a set amount if the underlying asset is above, or sometimes below, a certain level on the observation date. Also known as binary or all-or-nothing options because there are only two possible outcomes: a predetermined payout, or zero.
Digitial Plus Performance:
A type of digital structured note or CD that pays out a fixed amount if the underlying is above (or below) a specified level on a given date, usually the maturity date. In a Digital Plus Performance, if the performance of the underlying exceeds the amount of predetermined fixed amount, the note or CD pays an additional amount based on some participation in the additional performance of the underlying.
Double Barrier Option:
An option with two barriers; one setting the upper limit of the price of the underlying and one setting the lower limit. The underlying must only cross either one of the barriers to be activated (for knock-in options) or deactivated (knock-out options).
In many high-income products and some other forms of structured notes, the capital nvested is at risk if the underlying reference asset fails to rise over the term of the product. Downside gearing refers to the gearing applied to any fall in the underlying index in calculating the amount of capital that is returned if the underlying fails to rise.
Dual Directional Knockout:
A type of structured note or CD that may pay interest at maturity only if the Index levels do not breach predetermined barriers, or levels, during the observation period. The structures contain an ‘up and out’ barrier and a ‘down and out’ barrier, although the up and down barriers may not be equal distances from initial level. The interest may be a fixed payment predetermined at the inception of the trade, or may be based on the performance of the underlying index.
Equity Linked Note:
A bond, either principal protected or non principal protected, who’s return is linked to a single equity, equity index or basket of equities.
A security entitling the holder to purchase an underlying asset at or by some specified future date at a specified price, usually one higher than current market price, although sometimes, they may be settled in cash for an amount equal to their
in-the-money amount. Warrants may be traded as securities whose price reflects the value of the underlying stock.
Corporations often bundle warrants with another class of security to enhance the marketability of the other class. Warrants are like call options, but typically with longer maturities. Warrants are often offered by corporations or financial institutions, while standardized exchange-traded call options are not issued by firms.
A European-style option is one that can only be exercised once, on its maturity date.
This type of structured note is one that typically returns a minimum of 100% of the sum invested at maturity plus a bonus equal to a fixed amount plus the worst performing underlying asset (x2) from a given basket of underlying assets or indexes.
Similar to convertible bonds, but typically issued on stock that is not the stock of the issuing firm.
Any option with a more complicated payout structure than a plain vanilla put or call option. The payout could be a function of the average price of the underlying (average options), the same underlying at different times, the correlation between two underlying assets, could be based on the price at some other time than expiry, or conditional on a trigger such as a barrier.
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