Risk Latte - USD Ten Asset Basket

USD Ten Asset Basket

Team Latte
Dec 06, 2005


There is nothing exotic about this note and it is a simple basket. The only novel feature (if it can be called novel at all) of this basket is that a UST 2/30 spread (spread between 2 yr US Treasuries and 30 yr. US Treasuries) is added as an asset.

Underlying Assets: Gold, Crude Oil, Copper, EURUSD FX rate, USDJPY FX rate,
Nikkei225, KOSPI200, S&P500, USD 2/30 Spread,
Coupon: Zero
Redemption Amount: 100% of Notional plus Additional Amount
Additional Amount: If on the Maturity Date the S&P500 return, USDJPY and Copper
are amongst the five highest returns of the ten underlying assets
then the Additional Amount shall be given by:

Notional Amount *{9% + [alpha] * (Average of EURUSD and
JPYUSD FX return)]}


Where,

Alpha = 0.75 if EURUSD < 1.35 or USDJPY > 130
Apha = 0.25 otherwise

Otherwise the Additional Redemption Amount shall be zero.

Return: Return for all assets is defined as the Final Price less Initial Price
divided by the Initial Price.
Trade Date: January 1, 2006
Maturity Date: December 31, 2007

This note is very easy to price in a Monte Carlo simulation framework. Of course, hedging this note may be a bit of a headache for any trader especially given the complex nature of the total or correlation delta.


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