Warrant and certificates - finance

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  • Publié le : 4 janvier 2011
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Warrant and Certificates and their specific financial risk profiles



PART 1: Warrant and Certificates

A. What is a Warrant?
- Definition
- Maturity and life span

B. Types of certificates
- Certificates of indexation
- Certificates turbo
- Certificates of return

C. Risk of warrants and certificates

PART 2: specific financial risk profiles ofwarrant

A. Valuation of Warrant

B. Risk profiles of “Call warrant”?

C. Risk profiles of “Put Warrant”?


Implementation of derivatives



Warrant and Certificates and their specific financial risk profiles

Appeared in the mid-1980s, the warrants knew a real development at the end of 1990s.. This rapid development is linkedof course to the development of finance by Internet, which made trading cheaper and faster. Despite the bursting of the Internet bubble, the warrants have maintained exchange levels equivalent to those of 2000. With nearly 6 billion euro of trade a year, the warrants found a full place at Bourse. Today, most of financial newspapers and stock-exchange sites, online brokers offer a range of adviceand recommendations on these products. Warrants represent for investors many advantages: they are quoted on the Stock Exchange like any share, include many "underlying" (stocks, indices, currencies, commodities) and are subject to an animation market from the financial institution that issues them. Not less than 8,000 warrants that are esteemed in 2010 on Euronext Paris, on the Paris StockExchange. Euronext is an association, established in September 2000 by the merger of companies managing the markets stock exchange of Paris, Brussels and Amsterdam. Essential to reduce trading costs in an environment of European and global competition becoming more intense.

Implementation of derivatives



Warrant and Certificates and their specific financial risk profiles

A certificate is a derivative introduced in Europe since 1995. This is a security as the shares, thus negotiable by intermediary of an order book which retranscribes offers and requests. The effect of speculative certificates attract many beginning traders, in fact, variations can easily reach 100% in 1 day.

A. What is a Warrant?

A warrant is a right whichwe acquire; he allows to buy or to sale a share, a stock, a devise… at a specified price, during a specified period. There are two families of warrants:  “Call Warrant” that means purchase option which allows anticipating an increase of stock value, sharing value or index…  “Put Warrant” that means sale option which allows anticipating a decline. The warrants have two advantages: * Offer aleverage that can multiply the gains with limited funds * Hedge a portfolio that means to protect it against a market decline. An option is characterized by an underlying (share, index), a direction (call or put), an exercise price (called strike)...
The warrants were originally a means of hedging, not speculation. The “Calls” are the right to buy at the strike price, and the “Puts” a right to sellat the strike price during the year.

For instance: A warrant is a security as the actions, the primary function of a warrant is to reserve a certain amount of shares at a price chosen and a date known in advance. This allows for example to reserve 500 shares Mercedes at 60 euro in December 15, 2008 when it quote value is 48 euro today. The price of this purchase evolves with a current stockprice. So more the stock price rises, more the right to buy at 60 euro in 2008 also increases, but this right is rising faster in percentage because its value is minimal. This function is rarely used by individuals but for the investors, it might be interesting. They use mostly warrant or the reservation of share, evolves faster than the current stock price. A share progression of 1% may give a rise...
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