Today we have analyzed an autocallable note from Credit suisse. This note looks very interesting because it provides investor with higher coupon compared to other investment alternatives like treasuries but with reasonable risk.
As we all know SP 500 has been trending upwards after the great financial crisis. This can be attributed to FED's Quantitative easing program, good economic recovery and lower unemployment. Investing in the index is a good way to gain exposure to this market.
Major issue is we do not know a priori when to exit the market. I think structured note with its predetermined pay off profile will let investor decide how much return he would like to make on the investment and also corresponding loss on the investment.
This way one can design a note and then check its performance historically and also verify how it might behave in future using market simulations. We have done these tests to the note designed by the Credit suisse. We think Note has done well with 3y maturity but Karthik (from Gatick Global solutions) is arguing that this note would be better if the maturity is either 2y or 4y to reduce the down performance outcomes. I kind of like this argument as it is based on the rise of the market and followed by a recession and recovery theme.
Also, I think due to its low volatility ( 11.5%) and low risk score for some investors this is a good investment. Investors and Advisers should make use of this structure of this kind of note for different underlyings.
contact us for any advise on understanding the risks for this kind of note.
SP500 Auto Callable Note by chandkhand2
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