Analysis and Valuation of Bonus Certificates

Table of Contents

1 Introduction

1.1 Problem Definition

1.2 Procedure

2 Basics

2.1 Definition of Certificates

2.2 Components of Certificates

2.2.1 Fixed Income Securities

2.2.2 Stocks

2.2.3 Standard Derivatives

2.2.3.1 Options

2.2.3.2 Futures

2.2.4 Exotic Options

3 Benefits of Bonus Certificates

3.1 Investors

3.2 Issuers

3.3 The German Bonus Certificates Market

4 Characteristics of Bonus Certificates

4.1 Description of Bonus Certificates

4.1.1 Underlying

4.1.2 Conversion Ratio

4.1.3 Barrier

4.1.4 Bonus Level

4.1.5 Maturity

4.1.6 Default Risk

4.1.7 Costs

4.2 Design of Bonus Certificates

4.2.1 Zero-Strike-Call

4.2.2 Down-and-Out Put

4.2.3 Payoff-Profiles

4.3 Pricing of Bonus Certificates

4.3.1 Black-Scholes-Model

4.3.2 Underlying

4.3.3 Volatility

4.3.4 Dividends

4.3.5 Interest Rate

4.3.6 Maturity

4.3.7 Divergence of Pricing: Fair Value – Secondary Market

4.4 Taxation

4.5 Special Forms of Bonus Certificates

4.5.1 Capped Bonus Certificates

4.5.2 Quanto Bonus Certificates

4.5.3 Reverse Bonus Certificates

4.5.4 Multi Bonus Certificates

5 Empirical Analysis

5.1 Dresdner Bonus-Barrier-Certificate I

5.1.1 Description

5.1.2 Design

5.1.3 Pricing

5.1.4 Taxation

5.2 AGI Bonus Barrier Fund

5.2.1 Description

5.2.2 Design

5.2.3 Pricing

5.2.4 Taxation

5.3 Comparison: Dresdner Bonus-Barrier Certificate – AGI Bonus Barrier

5.4 Impact of current Stock Exchange Collapse on Bonus Certificates

6 Conclusion

Research Objectives and Key Topics

The diploma thesis aims to provide an extensive overview of the Bonus Certificates investment segment. It focuses on the conception, structure, and pricing of these financial products to develop a practical investment guideline. By analyzing embedded option components and relevant input factors, the thesis helps investors better understand the valuation of these complex derivatives, particularly in volatile market situations.

• Fundamental basics and component structure of retail certificates.
• Pricing mechanisms and the application of the Black-Scholes model.
• Strategic importance of barrier options and payoff profiles at maturity.
• Empirical analysis of specific Bonus Certificates and certificate funds.
• Impact of issuer default risk and market volatility on investment outcomes.

Excerpt from the Book

Chapter Summary

1 Introduction: Defines the problem regarding lack of transparency for private investors and outlines the thesis procedure.

2 Basics: Explains fundamental definitions, components like fixed income securities and derivatives, and introduces the concept of certificates.

3 Benefits of Bonus Certificates: Analyzes the advantages for investors through improved risk-return profiles and discusses the issuer's perspective.

4 Characteristics of Bonus Certificates: Details specific features including underlying assets, barriers, conversion ratios, pricing, taxation, and specialized variations like Capped and Quanto certificates.

5 Empirical Analysis: Conducts a practical case study comparing a specific Dresdner certificate and the AGI Bonus Barrier Fund, evaluating performance and tax implications.

6 Conclusion: Summarizes the complexity of the product structure and reinforces the importance of assessing risk-return profiles for successful investment.

Keywords

Bonus Certificates, Retail Certificates, Structured Products, Down-and-Out Put, Barrier Options, Black-Scholes Model, Financial Derivatives, Risk-Return Profile, Underlying Asset, Maturity, Issuer Default Risk, Volatility, Taxation, Capital Protection, Pricing Transparency

Frequently Asked Questions

What is the core subject of this thesis?

The thesis provides an in-depth analysis of Bonus Certificates as a structured financial product, focusing on their components, valuation, and suitability for private investors.

What are the primary themes discussed?

The central themes include the design of Bonus Certificates using exotic options, pricing factors such as volatility and dividends, risk assessment, and the impact of the German tax reform.

What is the primary goal of the research?

The goal is to provide investors with a comprehensive overview and a practical guideline for dealing with Bonus Certificates, specifically highlighting how to evaluate their structure and pricing.

Which scientific methodology is applied?

The work utilizes a combination of theoretical analysis based on standard financial models (like Black-Scholes) and an empirical analysis of specific investment products to illustrate real-world performance.

What is covered in the main part of the thesis?

The main part covers detailed product characteristics, the integrated option components (Zero-Strike-Call and Down-and-Out Put), valuation drivers, taxation, and empirical observations of certificate performance.

Which keywords define this work?

Key terms include Bonus Certificates, barrier options, financial engineering, risk-return optimization, and pricing transparency.

How does the Down-and-Out Put option affect the certificate's value?

The Down-and-Out Put is a crucial exotic component that defines the "bonus" structure; its value is highly sensitive to the proximity of the barrier and market volatility, effectively knocking out the certificate if the barrier is breached.

Why is the "Zero-Strike-Call" significant for Bonus Certificates?

The Zero-Strike-Call tracks the performance of the underlying asset up to the maturity date, serving as one of the two core components that enable the specific payoff profiles associated with Bonus Certificates.