A floating coupon note is a very flexible and generic funding product. The issuer pays the buyer periodic floating coupons based on a spread-adjusted reference rate, such as LIBOR. The buyer pays an upfront fee to the issuer. Also, the buyer pays the issuer a notional amount at inception and the issuer returns it upon cancellation or maturity of the deal.

Zero coupon bonds are issued at a deep discount and repaid the face value at maturity. The greater the length of the maturity is the cheaper price a bond has. Unlike other bonds, the investor’s return is the difference between the purchase price and the face value. An investor preferring a long-term investment may purchase zero coupon bonds such a…[Read more]

A puttable bond is a bond in which the investor has the right to sell the bond back to the issuer at specified times for a specified price. At each puttable date prior to the bond maturity, the investor may get the investment money back by selling the bond back to the issuer. The underlying bonds can be fixed rate bonds or floating rate bonds. A…[Read more]

Inflation indexed bonds, also called inflation linked bonds or real return bonds, are bonds where the principal is indexed to inflation or deflation on a daily basis in terms of a reference index, such as Consumer Price Index (CPI). The CPI is the proxy for inflation that measures price changes in a basket of goods and services.

A floating rate note has variable coupons, depending on a money market reference rate, such as LIBOR, plus a floating spread. When interest rate raises, the coupons of an FRN increases in line with the increase of the forward rates, which means its price remains relatively constant. Therefore, FRNs bear small interest rate risk. On the other hand,…[Read more]

A callable bond is a bond in which the issuer has the right to call the bond at specified times from the investor for a specified price. At each callable date prior to the bond maturity, the issuer may recall the bond from its investor by returning the investor’s money. The underlying bonds can be fixed rate bonds or floating rate bonds. A c…[Read more]

A bond future option is an option contract that gives the holder the right but not the obligation to buy or sell a bond future at a predetermined price. The writer/seller receives a premium from the buyer for undertaking this obligation. Options are leveraged instruments that allow the owner to control a large amount of the underlying asset with a…[Read more]

A bond future is a future contract in which the asset for delivery is a government bond. Any government bonds that meet the maturity specification of a future contract are eligible for delivery. All eligible delivery bonds construct the delivery basket where each bond has its own conversion factor. Conversion factors are used to equalise the…[Read more]

A bond is a debt instrument in which an investor loans money to the issuer for a defined period of time and receives coupons paid by the issuer at fixed interest rate. The bond principal will be returned at maturity date. Bonds are usually issued by companies, municipalities, states/provinces and countries to finance a variety of projects and activities.

An amortizing bond is a bond whose principal (face value) decreases due to repaying part of the principal along with the coupon payments. Each payment to the amortizing bond holder consists of a portion of interest and a portion of principal. While an accreting bond is a bond whose principal increases during the life of the deal. Each payment to…[Read more]

Autocallable Notes are hybrid instruments that offer a higher coupon if they are automatically called. The automatic call condition is based on a reference asset. The auto call happens If the reference asst is at or above its initial level on predefined observation dates. If called, the investor receives the principal plus a coupon. The reference…[Read more]

An equity range accrual note is a principal-protected note that pays out a series of coupons based on the performance of an underlying stock, index, or basket of assets. The holder receives these coupons on a set of scheduled payment dates, but only if the value of the underlying asset on that date is between a lower and upper threshold. More…[Read more]

A Correlation Swap is a contract in which the option buyer receives the difference between the observed correlation and the strike correlation on a basket of assets, observed over a specified time interval.