Certificate with Conditional Capital Protection and Additional Credit Risk
A capital protection note whose protection depends on a reference entity not defaulting.
Payoff at maturity
Move the parameters; the product formula and its building blocks are recomputed from the same engine that is tested against the workbook.
- No credit event
Redemption 100 %
Per 10'000 of nominal
| Underlying at maturity | Level | Redemption | Amount | Gain / loss |
|---|---|---|---|---|
| −30 % | 70 % | 100 % | 10'000 | +0 |
| unchanged | 100 % | 100 % | 10'000 | +0 |
| +30 % | 130 % | 130 % | 13'000 | +3'000 |
Coupons are shown as paid at maturity together with the nominal. Costs, taxes and the price you paid are not included. Scenario: No credit event.
Data table and formulas
Certificate with Conditional Capital Protection and Additional Credit Risk (1410), scenario "No credit event": redemption at maturity for an underlying at 0 % → 100 %; 1 % → 100 %; 40 % → 100 %; 100 % → 100 %; 200 % → 200 % of its initial level.
| Series | Formula | 0 % | 25 % | 50 % | 75 % | 100 % | 125 % | 150 % | 175 % | 200 % |
|---|---|---|---|---|---|---|---|---|---|---|
| Zero Bond | protection level | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| Short Credit Default Swap - Reference Entity | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Long Call - ATM x Participation | participation × max(S − strike, 0) | 0 | 0 | 0 | 0 | 0 | 25 | 50 | 75 | 100 |
| Product | if S > strike: protection level + participation × (S − strike); otherwise protection level | 100 | 100 | 100 | 100 | 100 | 125 | 150 | 175 | 200 |
Largest difference between the sum of the blocks and the product formula over the grid: 0.0e+0.
How it is built
Each block drawn on its own, then added. The last chart is the sum, and it is identical to the product line above.
- Zero Bondprotection level
- Short Credit Default Swap - Reference Entity0
- Long Call - ATM x Participationparticipation × max(S − strike, 0)
- Product: no credit eventif S > strike: protection level + participation × (S − strike); otherwise protection level
Largest gap between the sum of the blocks and the product formula on this grid: 0.0e+0. The same identity is tested for every product and scenario in the site's test suite.
Construction, as listed in the workbook
- Zero Bond (face = Protection Level)
- Short Credit Default Swap - Reference Entity (Zero Bond + Short CDS = synthetic Reference Bond)
- Long Call - ATM x Participation
In plain English
The zero bond is replaced by a synthetic reference bond: zero bond plus a short CDS on the reference entity. The CDS premium raises the option budget, so the participation is higher than in a plain capital protection note.
As long as no credit event occurs, the product behaves like a capital protection note. After a credit event, the workbook assumes the product terminates and pays the recovery value; the option part is treated as void. In practice issuers pay the market value of the reference bond and may settle the derivative part separately.
Chances and risks
Chances
- Higher participation than a plain protected note.
- Protection and upside if the reference entity stays solvent.
Risks
- Protection vanishes on a credit event.
- Two credit exposures.
- Recovery value can be very low.
Who it fits
- Investors who want a protected note with better terms and accept a named credit risk.
Who it does not fit
- Investors who assume "capital protection" means unconditional.
Features that can be added
Cross-category features from the workbook that issuers attach to this type.
Nearby on the map
- 1400Additional Credit RiskCredit Linked Note
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A tracker funded by a synthetic reference bond: full equity exposure plus credit risk, in exchange for better terms.Credit risk