The Design of Structured Products and Estimation of their Efficiency (the Case of Basket Notes)

Student: Tkachenko Mariya

Educational Programme: Financial Engineering (Master)

Year of Graduation: 2017

Despite the fact that the Russian market of structured products has not become developed yet, there is a wide range of products designed for investors with different income levels and attitudes toward risk. For example, an FTD ("first-to-default note") is going to become a real alternative to the deposit and take a significant share in the conservative investor's portfolio in the nearest future. In this paper we consider the process of FTD-note structuring and analyze the basic principles of delta hedging carried out by the broker throughout the entire period to maturity. We also test the main methods of FTD-notes pricing - the method of total delta, the delta as a measure of FTD sensitivity to the change in value of underlying asset, and estimation using copula. We analyzed the baskets of Russian and European brokers and concluded that the Russian broker FTD fair value is lower due to the high correlation of reference issuers.

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