Autocallable Structured Notes - involving the knowledge of exotic Essay

Autocallable Structured Notes - involving the knowledge of exotic options and portfolio replicating skills - Essay ExampleWith reference to the term sheet, the issued autocallable structured notes unless are principal protected which is a significant deviation in the structure of the security since it was originally issued. One issue which is more prominent since the rear of this type of security is its pricing. Pricing models have now proposed a new approach to the pricing of autocallable structured note by incorporating stochastic volatility by taking on the correlation between the engross and equity.Due to the high return offered by these structured notes owing to their inherent structure as they feed to increase in value when markets go down as well as when markets are rising. The reason for the issuance of these investment securities during Oct/November 2007 was because of the fact that due to recognition crunch in the financial sector at International Level and resulting v olatility in the equity markets resulted in creating opportunities for the investors to engineer instruments which provide a substantiate high return coupled with principal protection. This fact can also be corroborated in the sense that the overall credit crunch in occidental financial institutions resulted in upward surge in the interest rates hence necessitating a raise in the required rate of return by the investors in the equity markets also. Since these structured notes are structured in a way that they either go in tandem with some benchmarking rates wish LIBOR thus any fluctuation in benchmarking rates also push the returns on these instruments in more favorable position for the investors. Apart from that autocallables are considered as yield enhancement strategies.Trading units and size of the issue do not seem to be having any implications on the risk return profile of the investor however it must also be noted that the underlying currency of the asset may have some im plications on the value since any changes in the interest rates will have impact on the exchange rates and this may