Coupon Note


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Coupon Growth Note Valuation


FinPricing provides valuation models for:

  • Bonus Coupon Option/Note
  • Coupon Growth Option/Note
  • Bonus Enhanced Option/Note
  • Basket Coupon Option/Note
  • Reverse Swing
  • Skipton Digital
  • Digital Coupon Note
  • Digital Stepper
  • Reverse Swing Option
  • Collateralized Equity Obligation
  • Check FinPricing valuation models

All the equity models in FinPricing take volatility skew/smile and dividend into account.


1. Bonus Coupon Note Valuation

A bonus coupon note, also referred to as coupon growth note or bonus enhanced note or basket coupon note, is an equity-linked note that provides guaranteed coupons over the life of the note with potential for a bonus coupon based on the underlying asset trading above a specified barrier level.

The note pays a series of coupons based on the weighted performance of all assets in the basket on each Coupon Determination Date. The initial stock prices as reference level always remain fixed. The coupons are usually capped and floored. There may be local caps and floors applied to the return of each individend stock and global caps and floors applied to each coupon

There is also a barrier. if on any barrier observation date, the performance of any asset in the basket exceeds the ‘digital barrier’, its performance is replaced by a digital coupon.

If the performance of ALL assets in the basket hit or exceed the bonus barrier on a coupon determination date, the equity-linked coupon above is instead replaced by a fixed Bonus coupon.

The equity-linked bonus coupon notes typically benefit investors who are moderately bullish the short-term prospects of particular shares or index and who are looking for a guaranteed cash flow. Investors feel also comfortable being put stock at maturity if the asset price is below the strike.


2. Valuation

Set the initial price of each asset as reference. At each observation date, compute the return of each asset and then compare it with the digital barrier.

bonus coupon digital barrier

At each coupon determination date, check if all the assets exceed the bonus barrier. If so, pay the bonus coupon - N * BonusCoupon. Otherwise, pay the equity-linked coupon.


3. Related Topics