Capital Protection Notes (CPNs)

These products protect a portion of the invested capital. Capital protected products offer a defensive investment and are a suitable way to invest in financial markets with little or no capital risk.

Advantages

• Capital (partially or fully) protected at maturity
• Higher potential return than fixed income investments
• Participation possible in a broad range of underlyings

Choice of Capital Protection Levels

• 100% of your invested capital
• Less than 100% (in this case investors will generally get a higher participation rate)
• Greater than 100% (in this case investors will generally get a lower participation rate)

Choice of Participation Type

• Participation can vary according to the structure features, such as maturity or level of capital protection
• Different payoffs are available, such as capped upside to increase the participation

Assumptions

XYZ share price is EUR 10.
Strike price is EUR 10.
Capital Protection is 100%.
Participation level on the upside is 80%.

Scenario 1

XYZ share is above Strike price at maturity, for example EUR 15 (meaning a EUR 5 increase).
The investor will receive EUR 10 + (80% x EUR 5) = EUR 14.

Scenario 2

XYZ share is below Strike price at maturity, for example EUR 7.
The investor is fully protected and will receive EUR 10.

Structure Components

• Long Zero Coupon Bond
• Long Call Option (Strike at Strike price), multiplied by participation level

Risks

On the secondary market, the price of the Capital Protected Note fluctuates in relation to several parameters, such as the price of the underlying, the volatility level of the underlying and the level of interest rates. Investors should be aware that the capital protection only applies at maturity.

Additional Features

To optimise the structure, a worst-of feature can be added, to increase the participation in the upside of the underlying or increase the protection level. In that case, the price considered for the payoff calculation is the one of the worst performing underlying, within the basket of underlyings.

Another way to increase the participation on the upside or the protection level is the use of Asian options. Instead of considering the level of the underlying at maturity (for the final price), the final level is taken as an average of the underlying level at multiple dates over the product’s life.