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How to build required risk-return profile using available financial instruments?

Introduction to the research topic:. How to build required risk-return profile using available financial instruments?. Plastinina Daria , MiFIT. SEC Rule 434[2] defines structured products as: securities whose cash flow characteristics depend upon

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How to build required risk-return profile using available financial instruments?

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  1. Introduction to the research topic: How to build required risk-return profile using available financial instruments? PlastininaDaria, MiFIT

  2. SEC Rule 434[2] defines structured products as: securitieswhose cash flow characteristics depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows."

  3. Combinations of derivatives and financial instruments create structures that have significant risk/return and/or cost savings profilesthat may not be otherwise achievable in the marketplace. Structured products are designed to provide investors with highly targeted investments tied to their specific risk profiles, return requirements and market expectations. These products are created through the process of financial engineering, i.e., by combining underlyings like shares, bonds, indices or commodities with derivatives. The value of derivative securities, such as options, forwards and swaps is determined by the prices of the underlying securities.

  4. Cash flow characteristics of structured product Variable flow Derivatives Leftover funds Underlying (Deposit, bond, etc.) Permanent flow

  5. Benefits of structured products may include: • principal protection; • tax-efficient access to fully taxable investments; • enhanced returns within an investment; • reduced volatility (or risk) within an investment; • the ability to earn a positive return in low yield or flat equity market environments. • Disadvantages of structured products may include: • credit risk - structured products are unsecured debt from investment companies; • lack of liquidity; • no daily pricing; • highly complex.

  6. Structured products can be presented to investors in form of: • Agreement (loan, REPO, trust management, forwards) • Security (bonds with floating interest rate, as Troika Index Bond) • Investment fund (Ex, Troika Dialog – DobrynyaNikitich, hedge funds) • Bank deposit (Ex., range of deposits in Kit Finance. Insured in Deposit Insurance Agency) • Insurance annuity(Annuity linked to the stock market) • Pension annuity(Annuity linked to the stock market)

  7. Types of structured products: • Capital protection level: • Principal protected SP; • Partially principal protected SP; • Without protection of principal; • Principal protected with guaranteed minimum fixed income; • Duration of the product: • Fixed; • Conditional. • Beneficial market trend: • Bull market; • Bear market; • Flat market.

  8. Russian market statistics: short summary Form of structured products

  9. Russian market statistics: short summary Capital protection

  10. Russian market statistics: short summary Underlyings

  11. Why the theme is important? • Trust managers and investment funds in Russia need to hedge positions, while short sales are forbidden. • Russian trust managers are not able to compete with foreign funds, as list of allowed assets doesn’t include gold, oil, wheat and other popular instruments. Only options on futures available • Low liquidity of the derivatives’ market • High risks of derivatives’ market (individual investor can easily loss all the money invested)

  12. Example of equity-linked note

  13. Return profile of Structured product

  14. Examples of equity – linked notes profiles High expected return on underlying Moderate expected return on underlying Moderate expected loss on underlying High expected loss on underlying

  15. Research question: Define the general method to build required risk-return profile with use of available financial instruments at minimal costs for the company? To build the function of costs for the company To build the risk-return profiles of available structured products To build isocosts (if possible) Payment risk for the company Values of underlying

  16. Technical analysis Ordinary stocks, GAZPROM Market is overbought

  17. Пример. ЭЛЕМЕНТЫ ДЕНЕЖНОГО ПОТОКА ПО СТРУКТУРОМУ ПРОДУКТУ

  18. МИРОВОЙ РЫНОК СТРУКТУРНЫХ ПРОДУКТОВ

  19. ДИНАМИКА ИЗМЕНЕНИЯ ДОЛИ СП В ОБЩЕМ ОБЪЕМЕ ИНВЕСТИЦИЙ

  20. ДИНАМИКА ИЗМЕНЕНИЯ ПРЕДПОЧТЕНИЙ ИНВЕСТОРОВ В ОТНОШЕНИЕ ТИПА СП

  21. ТРЕБОВАНИЯ К ПРОДУКТУ • Возможность создания синтетической короткой позиции • Расширение состава инструментов инвестирования • Обеспечение независимости результата инвестирования от ликвидности на рынке • Создание требуемого профиля риск-доходность

  22. ТЕНДЕНЦИИ РАЗВИТИЯ РОССИЙСКОГО РЫНКА СТРУКТУРНЫХ ПРОДУКТОВ реализации Стратегии развития финансового рынка до 2020 (рост числа розничных инвесторов, развитие срочного рынка) появление фондов акций, инвестирующих в производные финансовые инструменты (ОПИФА «Тройка Диалог – Добрыня Никитич») появление новых форм структурных продуктов – облигаций с плавающим купоном(Troika Index Bond) увеличение притока средств в фонды

  23. СТРУКТУРНЫЕ ПРОДУКТЫ В ПЕРМСКОМ КРАЕ

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