Commerzbank Interview Question: A client has got £10M now. Hi... | Glassdoor

Interview Question

Trader Interview London, England (UK)

A client has got £10M now. His son is 13. He wants to give

  him 10M£ in 5 years guaranteed. So the bank suggest him to enter a simple structured product with a ZCB and digital option. Which would be the amount of the binary option coupon? risk free interest rate = 1% Commission = 1%
Answer

Interview Answer

1 Answer

4

Price of the structured product = price of ZCB + price of binary option + Comm

ZCB equals 95%
Thenk with commission deducted, binary equals 4%. So the coupon would be 8%

Important : no dividends assumed. If there are some, then the forward price would be lower and the coupon will be higher since there would be less change that the digital be in the money (no more 50% 0 50% x)

Interview Candidate on Jul 12, 2014

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