Post on 27-Dec-2015
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Loan Coupons
Bonds
C = coupon payment n = number of payments i = interest rate, or required yield M = value at maturity, or par value
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Hedging Correlations Capm
Risk versus return
Marktrisico
Rf: risk free rateRi: return stockRm: return market
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Turbo’s Why important? Possibility to enhance your return in relation
to a direct investment
More advantageous in short-term investing◦ B&R Competition
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How does it work? Assortiment
◦ Underlying value, no direct investment Leverage
◦ High returns possible Value Stop-loss level
But.. Costs (e.g. Financing costs) Risks (e.g. Stop-loss level)
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Assortiment What products can be trade with turbo’s?
◦ Regular stocks◦ Bonds◦ Indices◦ Valuata’s◦ Commodities◦ ...
◦ Turbo’s short vs. longwww.abnamromarkets.nl/turbo
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Value Value equal to the difference between price
of underlying value and financing level turbo
Value turbo long = Price underlying value – financing levelValue turbo short = Financing level – Price underlying value
Note: Currency exchange rate
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Stop-loss level No expiration date Value turbo never negative
So, existence of stop-loss level◦ Losses at max total investment◦ Removed from exchange◦ Residual value
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Costs Financing costs/benefits
◦ Daily completion◦ Libor rate (Londen Interbank offered rate)◦ Turbo short(costs) vs. Turbo long(benefits)
Buy and sell costs (depends on broker) Taxes
◦ We advice to go to tax adviser if necessary
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Risks Exchange rate risks
◦ Abroad investment Interest rate risk (changing) Credit risk
◦ Bankruptcy ABN Amro
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Example Dow JonesValue turbo long = price underlying value – financing level
(ratio x exchange rate)
Price underlying value 11.000 pointsFinancing level 10.000 pointsStop-loss level 10.200 pointsEuro/dollar exchange rate 1,25 Ratio 100Value turbo long 8Leverage 11
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Scenario’s(1) Scenario 1:
◦ Dow Jones increases with 400 points◦ Return from 11.000 till 11.400 is 3,64%◦ Value turbo?◦ Return?
Scenario 2:◦ Equal price. Anything happens?
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Scenario’s(2) Scenario 3:
◦ Dow Jones decreases with 300 points◦ Return from 11.000 till 10.700 is -2,73%◦ Value turbo?◦ Return
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Scenario(3) Scenario 4:
◦ Dow Jones decreases with 800 points◦ Stop-loss is 10.200 and bank sells product for
10.150 (-7,73%)◦ Value turbo?◦ Return?
Scenario 5:◦ Scenario 4, but bank sells at 9.995?
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Conclusion Turbo’s Opportunity to leverage Huge profit- and loss potential Don’t lose more then investment
◦stop-loss Easily tradable Broad asortiment Euronext Amsterdam
But.. Risk and costs involved!