Risiko von FX Targeted Accrual Redemption Note
What is a target accrual redemption forward?
A target redemption forward (TARF) is a structured forward contract that allows you to trade at a better rate than a standard forward contract by integrating leverage and a profit cap level.
How does a target redemption forward work?
A target redemption forward is a foreign exchange product that allows the holder, usually a corporate, to buy or sell a currency at an enhanced rate for a number of expiry dates, with zero upfront premium. The product automatically expires if the enhanced rate reaches a target level.
How does FX Tarn work?
How does FX Tarn work? In a FX TARN, the end-user and the dealer exchange specified currencies, based on a predeter- mined exchange rate level (the “Forward Price” or alternatively, the “Strike Price”) on a series of pre- specified dates (the “Settlement Dates”) during the life of the transaction.
What is a tarn in finance?
A targeted accrual redemption note (TARN) is an index-linked derivative containing a target cap. The cap refers to the maximum amount of accumulated coupon payments received. Once the cap has been reached, the note automatically terminates. FX-TARNS are linked to an index of currencies rather than equities.
What is a range accrual note?
A Range Accrual Note (RAN) is a structured product typically issued by a financial institution such as a bank. The payoffs from such a note are more complex than those for a plain-vanilla fixed income product, all else equal.
How do you hedge a Tarf?
The sequence of steps are:
- Simulate the underlying FX exchange rate using Monte Carlo simulation.
- Simulate the payoff for vanilla products including the simple forward, call and put options.
- Simulate the payoff for participating forward and TARF.
- Calculate average impact and worst case loss.
- Plot required graphs.
How is a Tarf structured?
The TARF structure is usually comprised of a series of individual legs that redeem on consecutive expiry dates.