Value at Risk (VaR) is the regulatory measurement for assessing market risk. It reports the maximum likely loss on a portfolio for a given probability defined as x% confidence level over N days. VaR is vital in market risk management and control. Also regulatory and economic capital computation is based on VaR results. Although VaR measure is objective and intuitive, it doesn’t capture tail risk. There are three commonly used methodologies to calculate VaR – parametric, historical simulation and Monte Carlo simulation. This presentation focuses on Monte Carlo VaR.

An equity warrant is an option on the equity of a firm issued by the same firm, which gives the holder the right to purchase shares at a fixed price from the firm at a future date. When a warrant is exercised, the firm typically issues new shares at the exercise price to fill the order. The resulting increase in shares outstanding dilutes the share value.

A cliquet option, also called ratchet option, consists of a series of forward start options, each struck at the money on the date it becomes active. Typically, each option begins on the date corresponding to the expiry of the previous option. The cliquet is a series of at-the-money options, with periodic settlement, resetting the strike value at the then current price level, at which time, the option locks in the difference between the old and new strike and pays that out as the profit. The profit can be accumulated until final maturity, or paid out at each reset date.

A bonus coupon note, also referred to as coupon growth note or bonus enhanced note or basket coupon note, is an equity-linked note that provides guaranteed coupons over the life of the note with potential for a bonus coupon based on the underlying asset trading above a specified barrier level. The note pays a series of coupons based on the weighted performance of all assets in the basket on each Coupon Determination Date. The coupons are usually capped and floored.