Diese Hausarbeit enthält eine Gegenüberstellung und einen Vergleich von Discount-, Bonus-, Garantie- und Faktorzertifikaten. Der Vergleich beinhaltet eine Produktanalyse (Charakteristik, Einsatzmöglichkeiten, etc.) und eine Darstellung des Risikoprofils der jeweiligen Zertifikate.
A term paper in the field of derivatives. Content: a comparison of Discount-, Bonus-, Guarantee- and factor-certificates. The comparison includes a product analysis (the character of the products, investment aims with these products) as well as an illustration of the risk- and return- profile of the respective certificates.
Table of Contents
1 INTRODUCTION
2 CERTIFICATES IN GENERAL
2.1 IMPORTANT DEFINITIONS AND CHARACTERISTICS OF CERTIFICATES
2.2 ADVANTAGES AND DISADVANTAGES OF CERTIFICATES
2.3 CATEGORISATION OF CERTIFICATES
2.4 RISK FOR ALL TYPES OF CERTIFICATES
3 DISCOUNT CERTIFICATES
3.1 DEFINITION, FUNCTIONALITY AND CONSTRUCTION
3.2 APPLICATION FIELDS AND INVESTMENT AIMS
3.3 RETURN AND RISK
3.4 ASSESSMENT AS AN INVESTMENT POSSIBILITY
3.4.1 ADVANTAGES
3.4.2 DISADVANTAGES
4 BONUS CERTIFICATES
4.1 DEFINITION, FUNCTIONALITY AND CONSTRUCTION
4.2 APPLICATION FIELDS AND INVESTMENT AIMS
4.3 RETURN AND RISK
4.4 ASSESSMENT AS AN INVESTMENT POSSIBILITY
4.4.1 ADVANTAGES
4.4.2 DISADVANTAGES
5 GUARANTEE CERTIFICATES
5.1 DEFINITION, FUNCTIONALITY AND CONSTRUCTION
5.2 APPLICATION FIELDS AND INVESTMENT AIMS
5.3 RETURN AND RISK
5.4 ASSESSMENT AS AN INVESTMENT POSSIBILITY
5.4.1 ADVANTAGES
5.4.2 DISADVANTAGES
6 FACTOR CERTIFICATES
6.1 DEFINITION, FUNCTIONALITY AND CONSTRUCTION
6.2 APPLICATION FIELDS AND INVESTMENT AIMS
6.3 RETURN AND RISK
6.4 ASSESSMENT AS AN INVESTMENT POSSIBILITY
6.4.1 ADVANTAGES
6.4.2 DISADVANTAGES
7 CONCLUSION
7.1 SUMMARY
7.2 CRITICAL EVALUATION OF CERTIFICATES AS INVESTMENT VEHICLES
Objectives and Topics
The primary objective of this paper is to provide a comprehensive analysis of the risk profile and functionality of various certificate types, enabling private investors to understand their application in different market scenarios. By examining the fundamental mechanics of these investment vehicles, the study aims to clarify their strategic utility and potential risks for retail investors.
- General analysis of certificates as structured financial products
- Functional mechanics and risk profiles of discount, bonus, guarantee, and factor certificates
- Comparative analysis of investment strategies and market expectations
- Evaluation of issuer risk and cost structures for private investors
- Assessment of suitability for different investment objectives
Excerpt from the Book
2.1 Important definitions and characteristics of certificates
Certificates can be defined as obligations, typically issued by banks for which certificates represent a source of debt-refinancing, which possess derivative components such as options which leads to a special risk- and return profile which will be explained in detail, later in this paper. This combination of an obligation with derivative leads to the fact that certificates are also described as ‘Structured Products’ and are referred to the group of financial derivatives. Compared with usual bonds, the issuer of a certificate is not committed to repay the nominal value but to repay an amount which depends on the performance and development of a certain underlying. In the course of this, the underlying can be nearly any other financial asset such as stocks, futures, indices, currencies and commodities. Besides that, the certificate also does not provide any regular payments like a coupon bond but only one payment at the end of maturity. Another possibility for the investor to get returns exists in selling the product. (cf. Grill / Perczynski 2014: 270)
Main buyers of certificates are private costumers because institutional investors usually have access to markets for derivative products like EUREX and therefore are not reliant to banks, issuing certificates. Thus, certificates are typically retail products which represent a simple investment possibility for private investors to pursue complex investment strategies by enabling access to markets which usually are not open for private investors (cf. Janos / Hunziker 2010: 47) Certificates can be described as comparably new financial inventions: They were introduced to the markets by Dresdner Bank in June 1990 which at that time issued an index-certificate of which the German DAX was the underlying. (cf. Capek 2010: 8)
Summary of Chapters
1 INTRODUCTION: This chapter outlines the rising popularity of certificates and defines the paper's focus on analyzing four specific types through the lens of their risk profiles.
2 CERTIFICATES IN GENERAL: This section provides foundational definitions, characteristics, and a broad categorization of certificates, while addressing the critical issue of issuer risk.
3 DISCOUNT CERTIFICATES: The chapter explains the functionality of discount certificates, focusing on capped participation and how they function as covered options to suit specific market outlooks.
4 BONUS CERTIFICATES: This part details the structure of bonus certificates, highlighting the importance of the barrier and security level for protecting capital in sideways markets.
5 GUARANTEE CERTIFICATES: This chapter describes how guarantee certificates combine zero bonds with call options to offer capital preservation for risk-averse investors.
6 FACTOR CERTIFICATES: This section explores leveraged investment via factor certificates, explaining their constant leverage mechanism and sensitivity to market volatility.
7 CONCLUSION: The final chapter summarizes key insights and provides a critical evaluation of certificates, emphasizing the trade-off between flexibility and costs like issuer margins.
Keywords
Certificates, Structured Products, Discount Certificates, Bonus Certificates, Guarantee Certificates, Factor Certificates, Issuer Risk, Derivative Components, Market Volatility, Capital Preservation, Leveraged Investment, Asset Management, Financial Derivatives, Retail Investors, Investment Strategy
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on the analysis of the functionality and risk profiles of various types of certificates, specifically discount, bonus, guarantee, and factor certificates, to guide private investors.
What are the primary investment categories covered?
The paper covers four main categories: discount certificates, bonus certificates, guarantee certificates, and factor certificates.
What is the ultimate research objective?
The objective is to provide a structured overview and critical assessment of these certificates to help private investors choose suitable investment styles based on their market expectations.
Which scientific methodology is employed?
The paper employs a descriptive and analytical approach, defining the products, illustrating their functionality via pay-out profiles, and comparing them with direct investments using calculated examples.
What does the main body analyze?
The main body breaks down each certificate type by its definition, functionality, construction, application fields, and specific risk-return characteristics.
Which keywords best characterize this work?
Key terms include Structured Products, Risk Profiles, Investment Strategy, Capital Preservation, Leveraged Investment, and Issuer Risk.
How does the issuer risk specifically affect the certificate holder?
Since certificates are debt instruments, the investor is exposed to the insolvency risk of the issuing bank, as the invested capital is not protected by special asset status.
Why is the "issuer margin" a significant factor for the investor?
The issuer margin is a cost component that reduces the potential return for the investor, making certificates relatively expensive compared to other direct investment vehicles.
- Quote paper
- Jannik De Winter (Author), 2018, A Risk Profile of Discount-, Bonus-, Guarantee- and Factor-certificates, Munich, GRIN Verlag, https://www.grin.com/document/442813
