thinking hybrids

Achieving more together

Thinking Hybrids

Corporates & Markets

Equity Markets & Commodities (EMC) Diversified Investments

Contents

Your partner for Hybrid solutions 04

What are EMC Hybrids? 05

Why should you consider hybrids? 06

What do EMC Hybrids offer? 10

The EMC Hybrids team 16

Summary and conclusion 17

Hybrid Products 18

Hybrid structured products are derivatives linked to more than one asset class.

• They can be linked to the performance of a basket of assets from different classes

• Payments related to one asset class can be contingent on performance of another

Equity e.g. Equity indices, ETFs, Mutual Funds

Commodity e.g. GSCI, Oil, Gold

Fixed Income e.g. Interest rates, FX, inflation, Bonds, Credit

Hybrids Diversified Investment

What are EMC Hybrids?

What are EMC Hybrids? | 5

DiversificationTraditionally correlation between different asset classes is low. By choosing a broad asset allocation it is possible to increase portfolio diversification, which leads to more consistent and stronger returns.

A well diversified portfolio can also help to reduce volatility of returns throughout market cycles.

AccessHybrid structured products allow tailored access to a broad range of assets that are often not easily investable (oil, gold, currencies etc.).

Distribute risk between asset classesA portfolio constructed from multiple asset classes is well positioned in uncertain market conditions. Portfolio risk can be spread between assets that respond in different ways to a changing economic climate.

Specific products can be structured to profit from differing returns between asset classes without direct individual investment.

CustomisationHybrid structured products offer a broad variety of investment strategies to meet individual needs. Derivatives can be designed to match particular risk-return profiles and market exposure.

Why should you consider EMC Hybrids?

Your partner for Hybrid solutions

Commerzbank Corporates & Markets (C&M) is the corporate and investment

banking segment of Commerzbank AG, providing a broad range of products

and services to corporate and institutional clients.

The business incorporates advisory and capital markets activities in debt,

equities, commodities, fixed income and currencies with a strong focus on

derivatives and structured products.

C&M aspires to be your partner of choice when it comes to the development

and execution of smart solutions for all your financing and capital market needs.

Equity Markets & Commodities (EMC) is a core business of C&M servicing

institutional investors and private customers with award winning structuring

expertise in equity, commodity, and fund-linked derivatives, as well as

hybrid structures linked to those assets.

Our EMC Hybrids team is dedicated to structuring and trading hybrid

exotic, flow, index and strategy products. The team can also offer bespoke

structuring tailored to your individual investor requirements.

EMC aspires to be your partner of choice for Hybrid solutions.

6 | Thinking Hybrids


Why should you consider EMC Hybrids? | 7

Diversification – reduced correlation

• Correlation between different asset classes is generally low as they are influenced by different economic factors

• Poor returns in one asset class can potentially be offset by stronger returns in another

Historical correlation (S&P 500 vs EURO STOXX 50 and EURO STOXX 50 vs S&P GSCI)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09

EURO STOXX 50 – S&P 500 EURO STOXX 50 – S&P GSCI

Source: Bloomberg

Diversification – reduced volatility

• Lower correlation between asset classes leads to lower overall volatility of returns when combined in a diversified portfolio

• Volatility of the diversified portfolio performance is often lower than that of the individual assets

Historical one year volatility (EURO STOXX 50 TR, and equiweighted portfolio of EURO STOXX 50 TR / S&P GSCI / Iboxx EUR Government TR)

0%

10%

20%

30%

40%

50%

60%

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Mar-02-

Diversified portfolioEURO STOXX 50 TR

Source: Bloomberg

EURO STOXX

50 TRS&P GSCI

Iboxx EUR Government TR

EURO STOXX 50 TR 100.0% 3.1% -42.5%

S&P GSCI 100.0% 4.0%

Iboxx EUR Government TR 100.0%

Annualised Volatility

EURO STOXX 50 TR 22.3%

S&P GSCI 22.5%

Iboxx EUR Government TR 3.3%

Portfolio 11.8%Historical correlation between 2002 and 2008

Historical realised volatility between 2002 and 2008


S&P GSCIEURO STOXX 50 TR Iboxx EUR Government TR

Diversified portfolio

0%

50%

100%

150%

200%

250%

300%

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Why should you consider EMC Hybrids? | �

Diversification – increased stability

• Portfolio diversification leads to more stable returns

• A diversified portfolio is able to perform consistently throughout market cycles, even when a single asset class is performing badly

• The diversification benefits of a multi-asset portfolio can be seen clearly in an Efficient Frontier analysis

• When several asset classes are combined in a portfolio, the resulting overall risk-adjusted performance can be stronger than any of the individual constituents

• This gives investors additional control over the particular risk-return profile that they wish to achieve

• The grey line in the graph shows possible risk-return profiles available to investors holding traditional equity/bond portfolios

• The yellow points correspond to risk-return profiles combining equity, commodity and bonds

• The orange line on the graph shows the Markowitz Efficient Frontier – the optimal risk-return profiles – of diversified three asset portfolios


Average IRR Risk Sharpe ratio

EURO STOXX 50 TR

12.0% 17.9% 0.52

S&P GSCI 15.3% 18.4% 0.69

Iboxx EUR Government TR

4.7% 4.2% 0.48

Portfolio 8.6% 10.1% 0.87

Performance of EURO STOXX 50 TR, S&P GSCI and Iboxx EUR Government TR compared to an equally weighted portfolio of the three

Source: Bloomberg

Efficient Frontier analysis of various two and three asset portfolios (EURO STOXX 50 TR / Iboxx EUR Government TR / S&P GSCI )

By increasing diversification

investors can greatly enhance

their risk-return profile.

Based on annual returns between 2002 and 2008

Commodity

Equity

Bonds

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Risk

Ret

urn

Source: Bloomberg. Based on annual returns between 2002 and 2008

10 | Thinking Hybrids What does EMC offer? | 11

What do EMC Hybrids offer?

EMC can offer a broad range of structures linked to multiple asset classes.

Basket options – Equity, Commodity, Bonds, Mutual Funds

• Take advantage of the diversification effect of multiple asset classes to reduce option costs and target stable returns

Rainbow options – Equity, Commodity, Bonds, Mutual Funds

• Maximise the possibility of strong returns by choosing a payoff weighted towards the better performing asset classes during the lifetime of the option

Contingent payments – Equity, Interest rates, FX

• Combine traditional options with views on interest rates or FX rates to enhance potential returns

Protection – Equity, Inflation, Interest rates, FX, Credit

• Link option returns to inflation or prevailing interest rates in order to protect investors from economic changes

Strategies – Equity, Commodity, Bonds, Inflation, Interest rates, FX, Volatility

• Automatically choose between aggressive, balanced or defensive diversified portfolio allocations based on performance throughout the lifetime of the investment

Basket optionThe basket option is often composed of multiple asset classes linked to a common theme. It aims to take advantage of low correlation to ensure diversified sources of return and reduce volatility. The option is combined with a full or partial principal protection.

Key features

• Investment Term: Four years

• Underlying assets – S&P BRIC 40 Index – Pimco Emerging Markets Bond Fund

• Payment at maturity: participation in the positive performance of the equally weighted basket

Investment Rationale

• A diversified basket option allows investors to access to volatile underlying at a cheaper cost while keeping the potential of upside participation

• Combining equity and bonds improves the risk-return profile of the structure, aiming to match equity market growth over the long term while reducing capital fluctuation risk

Rainbow optionThe rainbow option allows investors to benefit from the growth of several asset classes. The structure observes the performance of the equity, commodity and bond markets, and at maturity retrospectively chooses an asset allocation weighted towards the best performing asset class. The option return is combined with full principal protection.

Key Features

• Investment term: Five years

• Underlying assets – EURO STOXX 50 – S&P GSCI – Iboxx EUR Government TR

• Payment at maturity: 50% of the best performing asset, 30% of the second best, and 20% of the worst performer


• The structure provides access to three separate asset classes

• Low correlation between asset classes reduces the cost of investment, allowing attractive participation rates and capital guarantees

• Asset allocation is carried out in hindsight – the investor automatically achieves an optimised portfolio allocation

• Diversified asset allocation aims to generate a stable return even if a single asset class performs poorly

• Principal is fully protected regardless of the performance of the underlying assets

Asset Breakdown

S&P BRIC 40 Index Equity

Pimco Emerging Markets Bond Fund Bonds

Asset Breakdown

EURO STOXX 50 Equity

S&P GSCI Commodity

Iboxx EUR Government TR Bonds


Asset Breakdown


EURUSD FX

What does EMC offer? | 13


Best of equity/inflation optionThe best of equity/inflation option provides investors with a return that is protected from the effects of inflation. The structure gives the potential for participation in equity growth but adjusts for the fact that equity growth sometimes does not beat inflation, which would result in a real loss to the investor.

Key Features

• Investment term: Three years

• Underlying assets – EURO STOXX 50 – Eurostat Eurozone HICP Ex Tobacco

• Payment at maturity: Full equity participation floored at the growth of inflation, provided the equity market does not fall below a certain threshold. In that case the investor receives full participation in the equity index


• The structure allows full participation in equity growth

• The growth is protected from the negative effect of inflation

• Principal is protected unless equity falls below a certain threshold, in which the investor receives full equity participation which is no worse than a direct investment

Best of equity/interest rate bonusThe best of equity/interest rate bonus links the payout of the usual bonus certificate to the long-term interest rate and benefits from its increase.

Key Features

• Investment term: Five years

• Underlying assets: – EURO STOXX 50 – 10-Year Constant-Maturity-Swap

• Payment at maturity: Maximum between the equity return and a specified multiple of the 10-Year CMS rate, provided the equity index does not fall to or below a certain threshold. Otherwise the investor is fully exposed to the equity return


• The structure allows investors to benefit from the best between the equity growth and the long-term interest rate growth, under certain market conditions

• By linking option payments to interest rates, the investor has increased certainty as to the real value of their return

• Principal is protected unless equity falls to or below a certain threshold, in which case the investor is fully exposed to the equity return

Contingent call optionThe contingent call option allows investors to combine a view on equity and FX rates, by linking a participation in equity growth to a movement in FX. The result is a reduction in cost to the investor. Principal is fully guaranteed.

Key Features

• Investment term: Two years

• Underlying assets – EURO STOXX 50 – EURUSD

• Payment at maturity: Full participation in the equity growth, provided that the FX rate fixes below a certain threshold


• The structure provides full participation in equity growth at a significantly reduced cost, frequently less than half the cost of a simple equity option

• FX thresholds can be specifically tailored to the views of individual investors

• Principal is fully protected regardless of the performance of the underlying assets

Asset Breakdown


Eurostat Eurozone HICP Ex Tobacco Inflation

Asset Breakdown


10-Year Constant Maturity Swap (CMS) rateInterest Rates


Asset Breakdown

EURO STOXX 50 TR Equity

Nymex WTI Crude Future

Energy Commodity

London Gold Spot Fixing Price

Precious Metal Commodity


DOVA Index (Optimised Volatility Arbitrage)DOVA is an arbitrage strategy that exploits the relationship between implied volatility and realised volatility for three different assets. It performs positively when implied volatility exceeds realised volatility.

Key Features

• Underlying assets – EURO STOXX 50 – Nymex WTI Crude Future – London Gold Spot Fixing Price

• Strategy: on each roll date, the exposure to the volatility of each asset is determined in proportion to the difference between the one-month implied volatility and a predefined level. This predefined level is different for each asset. Exposure to volatility is achieved by selling a leveraged one-month variance swap

• Roll: every month

• Stop loss rule: if at any time the index level falls to or below a certain threshold (50%) of the level at the previous roll, any variance swap position is unwound and the remaining capital is investing in an overnight money market account


• The strategy provides access to three different assets

• It seeks to take advantage of the relationship between implied volatility and realised volatility

• The strategy is currently traded in a note form providing investors with capital protection

Equity-Linked Note with Credit Yield EnhancementThe Equity-Linked Note with Credit Yield Enhancement provides the investor with a partial or full capital guarantee which is subject to the non-occurrence of a Credit Event plus a participation in the underlying share or index.

Key Features

• Investment term: 3 to 10 years

• Underlying assets: Equity Indices, Single Stocks, ETFs, Mutual Funds

• Reference Obligation can be based on bonds, deposits or CDS


• The Equity-Linked Note with Credit Yield Enhancement provides a higher equity participation than a traditional Equity-Linked structure.

• The reference obligation and reference entity can be tailored to the requirements of the investor

• Provided that no Credit Event occurs, capital is partially or fully guaranteed

• The Equity-Linked Note with Credit Yield Enhancement may provide a secondary market reflecting the liquidity of the reference obligation

Example : DOVA Index

DecSep20102009

55

50

45

40

35

30

25

20

JunDec Mar2008

High on 01/07/10 55.078Average 38.125Low on 07/13/09 21.757

Source: Bloomberg

What does EMC offer? | 15

Asset Breakdown

Emerging Market ETF Equity

Emerging Market bond Credit

Summary and conclusionVersatile investment opportunities

• Hybrid structured products offer a customisable and diversified investment solution

• Hybrids can deliver strong returns by taking advantage of both defensive and aggressive assets, and also provide investors with protection

• Structures are simple and transparent, as the quality and variety of underlyings is more important than complexity of payoffs

• Hybrid structured products can offer good value for money, as diversification often equates to reduced costs

• EMC has dedicated hybrid trading and structuring capabilities in order to provide tailored investments to its clients

Summary and conclusion | 17

In all market conditions,

EMC Hybrids offer an

attractive solution for

investors looking to find

stable and robust returns.

Dedicated hybrid trading and structuring teams

The EMC Hybrids team

• Equity Markets & Commodities is a part of the Corporates & Markets division of Commerzbank. It specialises in equity, commodity and fund-linked derivatives, and hybrid structures linked to those asset classes

• EMC has a dedicated hybrid trading desk based in London

• They are closely supported by equity and hybrid structuring teams in London, Frankfurt and Hong Kong

• Each desk is responsible for structuring tailor-made hybrid investment opportunities targeted at their respective client base

Flow Structuring Frankfurt

Kai Betz,

Andreas Hoch

Indices & Strategies

LondonHarry Tsivanidis,

Alicia Kerbrat

Structuring Hong KongEdwin Bernard

Exotic Structuring

LondonAnton Hong,

Thomas AdlardEMC Hybrid Trading, London

Michel Sibert,

Frederic Lescaroux,

Charles-Albert Karila,

Bastien Lussault

EMC Hybrids team


Underlying FX Target Level

iShares MSCI Emerging Markets Index Fund

$1.150

iShares MSCI Brazil Index Fund

$1.175

iShares MSCI Mexico Investable Market Index Fund

$1.180

iShares FTSE/Xinhua China 25 Index Fund

$1.090

Market Vectors Russia ETF $1.070

Key Features

Maturity Three years

Currency USD

Capital protection 95%

Option strike level 95%

Reoffer price 99.0%

FX-Linked Emerging Markets Note

The FX-linked Emerging Markets Note allows investors to combine views on equity and FX to gain full exposure to Emerging Markets growth through single ETFs.

Full equity participation is achieved provided that the EURUSD FX rate falls below a pre-determined target level at maturity of the product. The investor has 95% capital protection regardless of equity or FX performance. By linking the equity exposure to FX movements, investors can participate in traditionally expensive markets at a greatly reduced cost – less than half the cost of pure equity exposure.

Redemption at maturityIf EURUSD fixes below the target level the investor receives:

•Max (95%, performance of Emerging Market ETF)

•Else if EURUSD fixes above the target level the investor receives 95% of the initial investment

Hybrid Products

Here is a selection of the latest hybrid product ideas, offering significant

additional benefit compared to traditional single asset class structures.

Hybrid structured products provide many benefits for investors compared to

single asset class investment. Hybrids provide simple exposure to traditionally

difficult-to-access asset classes, and provide portfolio diversification. Also by

combining a market outlook on more than one asset class the cost of exposure

can be significantly reduced and attractive risk-return profiles can be tailored

for individual investors.

Hybrid Products | 1�

Asset Allocator Note

The Asset Allocator Note gives investors exposure to a diversified portfolio of equity, bonds and commodities.

The performance of three diversified portfolios is monitored throughout the lifetime of the option, where asset allocations are made based on varying desired risk-return profiles ranging from aggressive to defensive. At the maturity of the option the investor automatically receives the value of the best performing portfolio, and capital is guaranteed.

Redemption at maturity

•Max (100%, best performing portfolio)

•Each portfolio performance is measured as the average of ten semi-annual observations

Key Features

Maturity Five years

Currency EUR

Capital protection 100%


Reoffer price 99.0%

Asset Weightings Portfolio

EURO STOXX 50 S&P GSCI IBOXX EZSOV 5–7

50% 30% 20%

Aggressive


40% 20% 40%

Balanced


30% 20% 50%

Defensive

Interest Rate-linked Equity Option

The interest rate-linked equity option gives investors full participation in equity growth at a significantly reduced cost by linking the equity payoff to a move in interest rates.

The interest rate-linked equity option pays the investor a call on a single European equity provided that six month Euribor fixes above a pre-determined target level. Observation of the interest rate is in advance of maturity, i.e. six months prior to maturity of the equity option. By linking the equity payment to interest rates the option cost is reduced by close to half compared to the pure equity exposure.

Redemption at maturityIf 6 month Euribor fixes above 3.00% six months prior to maturity the investor receives:

•Max (0%, Equity performance)

•Else 0%

Key Features

Maturity Two years

Currency EUR

Interest rate trigger 3.00%


Equity Premium

FP FP Equity 5.90%

SAN SM Equity 8.97%

TEF SM Equity 4.93%

SAN FP Equity 5.98%

SIE GY Equity 8.55%

BNP FP Equity 11.09%

EOAN GY Equity 4.75%

BAYN GY Equity 6.38%

ENI IM Equity 4.74%

ALV GY Equity 7.06%

Hedged Oil Companies Reverse Convertible

The Hedged Oil Companies Reverse Convertible allows investors to take a positive view on a basket of oil companies. To offset some of the risk that these companies have linked to the price of oil, the equity exposure is hedged by purchasing a put on oil itself.

The investor buys a two year worst of reverse convertible on five oil stocks. Capital is protected unless one underlying trades below 60% of initial value during the product lifetime. The downside exposure is hedged to an extent as a trigger of the equity barrier gives the client the positive performance of a put on oil with strike at 80% of initial value.

Redemption at maturityIf all stocks remain above 60% of their initial level throughout the product lifetime the investor receives:

•100% + Coupon

•Else the investor is short an at-the-money put on the worst performing equity underlying, and long an 80% strike put on oil. The coupon is still guaranteed

Key Features

Maturity Two years

Currency EUR

European barrier 60%

Coupon in fine 12.5%

Reoffer price 96.0%

Underlying Ticker

ENI SpA ENI IM Equity

Repsol YPF SA REP SM Equity

Royal Dutch Shell PLC RDSA NA Equity

Exxon Mobil Corp XOM UN Equity

Total SA FP FP Equity

Oil Spot CL1 Comdty

Hybrids Products | 2120 | Thinking Hybrids

22 | Thinking Hybrids Section number | 23

Interest Rate-linked Equity Protection

A ‘worst case’ scenario for the life business is significantly weaker equity markets together with a sustained period of low interest rates. To try to provide protection from this environment, this interest rate-linked equity option delivers equity protection at a level that is adjusted depending on a sustained fall in long term interest rates.

The interest rate-linked equity protection pays the investor a put on the EURO STOXX 50 with a minimum strike of 75% and a maximum of 90%. The strike is initially set at 75% but increases linearly for each day that the 10 year Constant Maturity Swap rate remains below a certain absolute threshold. The scaling is such that the put strike reaches 90% if the interest rate remains below its threshold for half the lifetime of the option.


•Max (0%, Strike – Equity) Where Strike = min (90%, 75% + Adjustment x (Qualifying Days /

524)) and Qualifying Days are those where the 10Y CMS rate fixes at least 0.5% below its initial level

Key Features

Maturity Two years

Currency EUR

Adjustment 30%

Rate threshold Initial – 0.5%

Option price 12.5%

Underlying Ticker


10Y CMS Interest rate

Stagflation Option

The Stagflation Option provides investors with protection from unfavourable economic conditions at a significantly reduced cost. The investor is long a put on equity provided the economy is in a period of “stagflation” at maturity. “Stagflation” is deemed to be an environment where high inflation caused by rising commodity prices is not supported by equity growth.

The Stagflation Option pays the investor a put on the EURO STOXX 50 provided that both crude oil (S&P GSCI Crude Oil Index) and inflation (Eurostat Eurozone HICP Ex Tobacco) fix above pre-determined target levels at option maturity. By linking the equity payment to a particular economic environment the option cost is reduced by close to two thirds compared to pure equity exposure.

Redemption at maturityIf S&P GSCI Crude Oil Index fixes above 120% of initial level and inflation has increased by more than 3% p.a. the investor receives:

• Max (0%, 100% – Equity)

• Else 0%

Key Features

Maturity Two years

Currency EUR

Commodity barrier 120%

Inflation threshold 3% p.a.


Option premium 6.65%

Equity Premium


S&P GSCI Crude Oil Commodity

Eurostat Eurozone HICP Ex Tobacco

Commodity

24 | Thinking Hybrids Section number | 25

Hedged Oil Companies Reverse Convertible

The Hedged Oil Companies Reverse Convertible allows investors to take a positive view on a basket of oil companies. To offset some of the risk that these companies have linked to the price of oil, the equity exposure is hedged by purchasing a put on oil itself.

The investor buys a two year worst of reverse convertible on five oil stocks. Capital is protected unless one underlying trades below 60% of initial value during the product lifetime. The downside exposure is hedged to an extent as a trigger of the equity barrier gives the client the positive performance of a put on oil with strike at 80% of initial value.


•100% + Coupon

•Else the investor is short an at-the-money put on the worst performing equity underlying, and long an 80% strike put on oil. The coupon is still guaranteedChart 1: Backtest Autocallable Note:

Source: Commerzbank Corporates & Markets

Autocallable Note

This Autocallable Note allows for combined participation in the performances of two major emerging markets and oil and carries a decreasing autocall trigger and an ascending coupon.

Each year, if the worst performing underlying closes above the trigger level, the product is redeemed early and the ascending coupon is paid. Otherwise, the coupon is accrued until the following observation, where the trigger level will be lower, and so on. All three assets are positively correlated, meaning enhanced potential for an early redemption.

Redemption at maturityIf the worst performing underlying closes above the last trigger level, the note is redeemed at 100% and investors receive five times the coupon. Only if one or more underlyings close below a 50% barrier, the investor is long the worst performing underlying.

Key Features

Underlying Ticker

Hang Seng China Enterprises HSCEI Index

iShares MSCI Brazil EWZ US Equity

S&P GSCI Crude Oil SPGSCLP Index

Maturity: Five years

Strike level: 100%

European Barrier: 50%

Re-offer price: 96%

Currency Ascending coupon

Re-offer price

EUR 11.50% pa 100%/95%/90%/85%/80%

USD 11.60% pa 100%/95%/80%/75%/70%

Key Features

Maturity Two year

Currency EUR

European barrier 60%

Coupon in fine 12.5%

Reoffer price 96.0%

Underlying Ticker

ENI SpA ENI IM Equity

Repsol YPF SA REP SM Equity

Royal Dutch Shell PLC RDSA NA Equity

Exxon Mobil Corp XOM UN Equity

Total SA FP FP Equity

Oil Spot CL1 Comdty


Underlying Ticker

Developed Equity BasketS&P 500Eurostoxx50Nikkei 225FTSE 100

••••

SPX IndexSX5E IndexNKY IndexUKX Index

Emerging Equity BasketHang Seng China EnterprisesRussian DepositarayiShares S&P Latin American 40iShares MSCI Brazil

•

••

•

HSCEI Index

RDXUSD IndexILF US Equity

EWZ US Equity

Commodity BasketCrude OilS&P GSCI Industrial MetalsS&P GSCI Precious Metals

•••

CL1 CmdtySPGSINP IndexSPGSPMP Index

Interest Rate BasketiBoxx EUR DESOV TR 1–3SBI FOR AAA T

••

QW3E IndexSBRF1T

Real EstateFTSE EPRA/NAREIT Developed Europe

• EPRA Index

Himalaya Option

This five Year Himalaya Option allows investors to participate in a broad range of assets and asset classes while annually locking in the profits of the best performing asset class.

The performance of five different baskets on equity indices, emerging market indices/funds, commodities, interest rates and real estate is observed on an annual basis. At the end of the first year, the performance of the best performing basket is locked in and no longer observed in the following periods. The remaining four baskets are observed after two years and the best performance is locked in again, leaving three baskets for the next observation, and so on.

Redemption at maturityThe payoff at maturity equals the average of the five locked-inbasket performances.

Key Features

Maturity: Five years

Currency: USD

Strike level: 100%

Re-offer price: 12.50%

Chart 1: Backtest Himalaya Option:


Hybrids Products | 27

Inflation-linked Equity Option

As a result of the huge liquidity provided by quantitative easing policies around the world, there is a fear of significant inflation over the next few years. Even if we see a strong equity rally the effect of inflation could erode real returns for investors.

As current levels of inflation remain low, it is an attractive time to consider locking in protection against future rises. With this in mind we can offer an Inflation-linked Equity Option that provides participation in equity growth but gives protection against inflation by flooring returns at the level of the Eurostat Eurozone HICP Ex Tobacco.

Redemption at maturity

•Max (0, CPTFEMU(f) – 100%, SX5E(f) – 100%)

Key Features

Maturity Five years

Currency EUR

Underlying For Comparison

EURO STOXX 50 (SX5E Index), Eurostat Eurozone HCIP Ex Tobacco (CPTFEMU Index)

Five year call option on EURO STOXX 50 without the inflation floor costs 15.60%Five year inflation swap rate is 1.85% implying a return of 9.60% over five years, which is the expected minimum return for the investor in the Inflation-linked Equity Option

•

•


Backtest Toprank Option:

Frequency Cumulative Distribution

up to 4.0% 26.75% 26.7%

up to 8.0% 2.78% 29.5%

up to 12.0% 6.70% 36.2%

up to 16.0% 13.06% 49.3%

up to 20.0% 10.22% 59.5%

up to 24.0% 25.89% 85.4%

up to 28.0% 10.96% 96.4%

up to 32.0% 3.63% 100.0%

up to 36.0% 0.00% 100.0%

up to 40.0% 0.00% 100.0%

up to 44.0% 0.00% 100.0%

Chart 1: Backtest Toprank Option:


Hybrids Products | 2�

Toprank Option

This three Year Toprank Option gives investors exposure to a diversified basket of twelve indices across the major asset classes.

In the last six months of the option’s lifetime, the performance of each underlying is observed on seven averaging dates, and the performance of each underlying is determined as the average performance on those dates. The six best performances are then locked at 130%, guaranteeing a minimum return of 10% per annum on one half of the basket. Combined with the performances of the other six underlyings, the payoff is then determined as the average performance of the entire basket.

Redemption at maturity The payout at maturity equals the average performance of the basket underlyings, whereby the six best performances are locked at 130%.

Underlying Ticker

S&P 500 SPX Index

Eurostoxx50 SX5E Index

Nikkei 225 NKY Index

Hang Seng China Enterprises

HSCEI Index

Market Vectors Russia RSX US Equity

iShares MSCI Brazil EWZ US Equity

S&P GSCI Industrial Metals SPGSINP Index

S&P GSCI Energy ER SPGSENP Index

S&P GSCI Agricultural SPGSAGP Index

iBoxx Eurozone Performance Sov. 5–7

QW1M Index

S&P/ASX 200 AS51 Index

India Fund, Inc. IFN UN Equity

Key Features

Maturity: Three years

Strike level: 100%

Currency Re-offer price

SEK 13.55%

EUR 13.30%

USD 12.30%

CHF 13.05%

DisclaimerThis document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or the group companies mentioned in the document (“Commerzbank”). Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange.

This is a financial promotion/marketing communication (together “communication”). It is not “investment research” or “financial analysis” as these terms are defined in applicable regulations and has not been prepared by a research analyst. The views in this communication may differ from the published views of Commerzbank Corporates & Markets Research Department and the communication has been prepared separately of such department.

This communication may contain short term trading ideas. Any returns or future expectations referred to are not intended to forecast or predict future events. Any prices provided herein (other than those that are identified as being historical) are indicative only, and do not represent firm quotes as to either size or price.

This communication is for information purposes only. The information contained herein does not constitute the provision of investment advice. It is not intended to be nor should it be construed as an offer or solicitation to acquire, or dispose of, any of the financial instruments and/or securities mentioned in this communication and will not form the basis or a part of any contract. Potential counterparties/ distributors should review independently and/or obtain independent professional advice and draw their own conclusions regarding the suitability/appropriateness of any transaction including the economic benefit and risks and the legal, regulatory, credit, tax and accounting aspects in relation to their particular circumstances. Levels, bases and relief from taxation may change from time to time.

Any information in this communication is based on data obtained from sources believed by Commerzbank to be reliable, but no representations, guarantees or warranties are made by Commerzbank with regard to the accuracy, completeness or suitability of the data.

The past performance of financial instruments is not indicative of future results. No assurance can be given that any financial instrument or issuer described herein would yield favourable investment results.This communication is intended solely for distribution to Professional Clients and/or Eligible Counterparties of Commerzbank. It is not intended to be distributed to Retail Clients or potential Retail Clients. Neither Commerzbank nor any of its respective directors, officers or employees accepts any responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this communication.

Commerzbank and/or its principals or employees may have a long or short position or may transact in financial instrument(s) and/or securities referred to herein or may trade in such financial instruments with other customers on a principal basis. The information may have been discussed between various Commerzbank personnel and such personnel may have already acted on the basis of this information (including trading for Commerzbank’s own account or communication of the information to other customers of Commerzbank). Commerzbank may act as a market maker in the financial instruments or companies discussed herein and may also perform or seek to perform investment banking services for those companies.

No part of this communication may be reproduced, distributed or transmitted in any manner without prior written permission of Commerzbank. This communication or the manner of its distribution may be restricted by law or regulation in certain countries. Persons into whose possession this document may come are required to inform themselves about, and to observe any such restriction.

By accepting this communication, a recipient hereof agrees to be bound by the foregoing limitations.

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