From: Daniel Sabba
To: "jeffrey E." <jeevacation@gmail.com>
CC: Vahe Stepanian , Richard Kahn <
Paul Morris
Subject: One idea for diverging policies - calls on global dispersion [C]
Date: Thu, 29 Jan 2015 19:53:46 +0000
Infirm-Images: image001.jpg
Classification: Confidential
Jeffrey,
As we look at the world, the enormous dispersion of monetary and fiscal policies is obvious. One transaction we have
used in the past to articulate this theme, and it trickling down to equity markets, are calls on dispersion. This is an OTC
transaction in which a client pays a premium and receives a payout based on the average realized dispersion across global
markets. It is a way to be economically short correlation and long volatility across markets, similarly to outperformance
index options. I have plotted the historical 1y average realized dispersion between S&P500, EuroStoxx50, Nikkei, EEM and
HSCEI to illustrate.
Historical Average Realized Dispersion
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
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SP A A ..cp,t.
1 1 O414
/' 0 1 N. ger
4"
Current Strike Price of Dec15 Calls on Dispersion
—ly Average Realized Dispersion (SX5E,HSCEI, NKY, EEM, SPX)
Indicative Transaction Terms:
Client buys: European Call on Dispersion, quanta USD
Dispersion Basket: SPX, EEM, SXSE, HSCEI, NKY
Expiry: 18 Dec 2015
Strike: ATMF (11.2%)
Offer: 2.4%
where
Final Payout = Notional * max(Average Realized Dispersion — Strike,0)
Average Realized Dispersion = Average(absolute value of Individual Dispersion for each Index i)
Individual Dispersion for Index i = Final Performance for Index i — Average Performance
Average Performance = average (Final Performance for each Index i)
Final Performance for Index i = -1)
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Please let us know when would be a good time to connect.
Regards,
Daniel
Daniel Sabba
Key Client Partners
Deutsche Bank Securities Inc.
Tel. +
Mobi
Email
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