How to build required risk-return profile

using

available financial instruments?

Introduction to the research topic:

Plastinina Daria, MiFIT

SEC Rule 434[2] defines structured products as:

securities whose cash flow characteristics depend upon

one or more indices or that have embedded forwards or options or securities

where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to,

changes in the value of underlying assets, indices, interest rates or cash flows."

Combinations of derivatives and financial instruments create structures that have significant risk/return and/or cost savings profiles that may not be otherwise achievable in the marketplace.

Structured products are designed to provide investors with highly targeted investments tied to their specific risk profiles, return requirements and market expectations.

These products are created through the process of financial engineering, i.e., by combining underlyings like shares, bonds, indices or commodities with derivatives.

The value of derivative securities, such as options, forwards and swaps is determined by the prices of the underlying securities.

Underlying

(Deposit, bond, etc.)

Derivatives

Variable flow

Permanent flow

Cash flow characteristics of structured product

Leftover funds

Benefits of structured products may include:

principal protection; tax-efficient access to fully taxable investments; enhanced returns within an investment; reduced volatility (or risk) within an investment; the ability to earn a positive return in low yield or flat equity market

environments.

Disadvantages of structured products may include:

credit risk - structured products are unsecured debt from investment companies;

lack of liquidity; no daily pricing; highly complex.

Structured products can be presented to investors in form of:

1) Agreement (loan, REPO, trust management, forwards)

2) Security (bonds with floating interest rate, as Troika Index Bond)

3) Investment fund (Ex, Troika Dialog – Dobrynya Nikitich, hedge funds)

4) Bank deposit (Ex., range of deposits in Kit Finance. Insured in Deposit Insurance Agency)

5) Insurance annuity (Annuity linked to the stock market)

6) Pension annuity (Annuity linked to the stock market)

Types of structured products:

Capital protection level:

1) Principal protected SP;2) Partially principal protected SP;3) Without protection of principal;4) Principal protected with guaranteed minimum fixed income;

Duration of the product:

1) Fixed;2) Conditional.

Beneficial market trend:

1) Bull market;2) Bear market;3) Flat market.

Himalaya1%

Forward and options2%

Binary options4%

Best-off8%

Exotic8%

Deposit+option77%

Russian market statistics: short summary

Form of structured products

Without protection,2%

Clients choose,2% Partial capital pro-

tection (95%),5%

Principal protected,13%

Principal protected+ fixed income

78%

Russian market statistics: short summary

Capital protection

RTSI Index13%

Stocks8%

Commodities17%

Soft Commodities60%

Currency1%

S&P Index1%

Russian market statistics: short summary

Underlyings

Trust managers and investment funds in Russia need to hedge positions, while short sales are forbidden.

Russian trust managers are not able to compete with foreign funds, as list of allowed assets doesn’t include gold, oil, wheat and other popular instruments. Only options on futures available

Low liquidity of the derivatives’ market

High risks of derivatives’ market (individual investor can easily loss all the money invested)

Why the theme is important?

Parameters

Date of construction 14/03/2011

Duration 90 days

Principal protection level 80% (yearly)

Underlying Ordinary stocks, GAZPROM

Value of underlying on the start date 215,15 RUR

Fixed-income return rate 10% (yearly)

Volatility of underlying 28%

Option strategy Bear spread

Max return 71% (yearly)

Example of equity-linked note

Return profile of Structured product

Examples of equity – linked notes profiles

High expected return on underlying

Moderate expected return on underlying

High expected loss on underlying

Moderate expected loss on underlying

Research question:

Define the general method to build required risk-return profile with use of available financial instruments at minimal costs for the company?1) To build the function of costs for the company2) To build the risk-return profiles of available structured products3) To build isocosts (if possible)

Pay

men

t

Values of underlying

risk for the company

Technical analysis

Ordinary stocks, GAZPROM

Market is overbought

Элементы денежного потока Облигация Структурный продукт

Доход от продажи облигации, НКД полученный + +

Положительная вариационная маржа +

Расход при покупке облигации, НКД уплаченный - -

Отрицательная вариационная маржа -

Биржевой сбор при заключении контракта - -

Комиссия брокера - -

Комиссия депозитария (НРД) - -

Комиссия депозитария брокера - -

Налог на прибыль или НДФЛ - -

Пример. ЭЛЕМЕНТЫ ДЕНЕЖНОГО ПОТОКА ПО СТРУКТУРОМУ ПРОДУКТУ

0100200300400500600

2005 2006 2007 2008 2009Европа

Американский регион

Азиатско-Тихоокеанский регион

МИРОВОЙ РЫНОК СТРУКТУРНЫХ ПРОДУКТОВ

6,42% 6,51% 5,62% 4,89% 4,69%5,37%4,60%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 01.2011

Рынок денег Облигации Акции

Инвестиционные фонды Структурные продукты Прочие

ДИНАМИКА ИЗМЕНЕНИЯ ДОЛИ СП В ОБЩЕМ ОБЪЕМЕ ИНВЕСТИЦИЙ

ДИНАМИКА ИЗМЕНЕНИЯ ПРЕДПОЧТЕНИЙ ИНВЕСТОРОВ В ОТНОШЕНИЕ ТИПА СП

1,88% 3,99% 5,96% 5,53% 5,81% 4,23%1,55%0,56%0,59%

0%

20%

40%

60%

80%

100%

2003

2004

2005

2006

2007

2008

2009

2010

03.2011

Прочие СП с повышенной доходностью

СП участия СП с эффектом плеча

СП с защитой капитала

Возможность создания синтетической короткой позиции

Расширение состава инструментов инвестирования

Обеспечение независимости результата инвестирования от ликвидности на рынке

Создание требуемого профиля риск-доходность

ТРЕБОВАНИЯ К ПРОДУКТУ

ТЕНДЕНЦИИ РАЗВИТИЯ РОССИЙСКОГО РЫНКА СТРУКТУРНЫХ ПРОДУКТОВ

реализации Стратегии развития финансового рынка до 2020 (рост числа розничных инвесторов, развитие срочного рынка)

появление фондов акций, инвестирующих в производные финансовые инструменты (ОПИФА «Тройка Диалог – Добрыня Никитич»)

появление новых форм структурных продуктов – облигаций с плавающим купоном (Troika Index Bond)

увеличение притока средств в фонды

№ КомпанияЦелевая группа

инвесторовТип продукта

Минимальная сумма

инвестиций

Юридическая форма

1 Компания БКС Частные СП с защитой капитала

300 000 рублей

Брокерский договор

2 ИК ФИНАМ Частные СП с защитой капитала 3 млн. рублей Договор ДУ

3 УК МДМ Частные СП с защитой капитала

1,5 млн. рублей Договор ДУ

4Банк

ЮниКредитИнституциона

льные Himalaya 25 млн. рублей Договор покупки

5 ИК ВИТУС Частные СП с защитой капитала

250 000 рублей

Форвардный договор

СТРУКТУРНЫЕ ПРОДУКТЫ В ПЕРМСКОМ КРАЕ