Synthetic Financial Products Speech or Presentation

Synthetic Financial Products - Speech or Presentation ExampleNote that an increase from 1 to 2 is 100 per cent increase, from 1 to 3 a 200 percent increase, and so on. Therefore, a ccc per cent cap would be a get from 1 to 4 (in case of an mogul, from 100 to 400.)Analysis Where So is less than St is less than 400 initial index value times performance cap 300%. Here the initial index value has to be 1.333 in order for the performance cap to be 300, per problem statement, considering that has to be 300, in order to consequence 400.300 x 1.33 = 400Analysis Based on the ELN theory, the Face value or principal of the investment -- here $1,000,000 has to be reduced to its present value (PV), and the oddment between the present value figure and the Face follow is the amount available for exposure in the equity index options market. The present value of the amount is held either in a zero coupon bond or another risk-free investment vehicle such as a nest egg account earnings a fixed return.At 5%, the amount of $216,301 is available to be invested in European call options, as required by the problem. . European options can be exercised only at the end of their contract life, unlike American options which can be exercised at any time precedent to expiration date to take advantage of a profitable situation. While the problem statement states otherwise, ELN theory says that only long call options are used, as short positions - - the writing of call options -- is not consistent with the theory.It should also be noted that most index options are American options, and the restriction in elevate of European options limits the investors decision choices. It is therefore suggested that the writing of options be dispensed with as unnecessary to the ELN concept.Information provided by an annual Dun and Bradstreet publication indicates that the index options market is a cheap way of obtaining an opportunity to profit from the movement of an index such as the OEX