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Principal-Protected Equity-Linked Note
Matos, Pedro Case F-1752 / Published March 10, 2016 / 5 pages.
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Product Overview

The case puts students in the shoes of a private banker who wants to price a structured note for European high net worth clients with low levels of risk tolerance. The principal-protected equity-linked note (PP-ELN) provides investors with fixed income-like principal protection together with upside exposure to the S&P 500 Index. The students are asked how the bank should allocate the client's money to buy call options and invest in zero-coupon bonds to deliver this PP-ELN and still earn a fee. By adjusting the amount of principal protection or capping the upside potential, the students can calculate whether there is an opportunity for increased upside participation. This financial engineering case can be used to teach put-call parity, option strategies, and Black-Scholes pricing.



Learning Objectives

The case is targeted at MBA students as an illustration of the use and pricing of equity options. The case can be used to pursue the following teaching objectives: ? Illustrate financial engineering by structuring a PP-ELN. Using the principles of put-call parity, a PP-ELN can be structured either by packaging (1) call options and a zero-coupon bond, or (2) a long stock exposure together with a protective put. ? Apply Black-Scholes model pricing to call options. ? Discuss option strategies, in particular a collar strategy.


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  • Overview

    The case puts students in the shoes of a private banker who wants to price a structured note for European high net worth clients with low levels of risk tolerance. The principal-protected equity-linked note (PP-ELN) provides investors with fixed income-like principal protection together with upside exposure to the S&P 500 Index. The students are asked how the bank should allocate the client's money to buy call options and invest in zero-coupon bonds to deliver this PP-ELN and still earn a fee. By adjusting the amount of principal protection or capping the upside potential, the students can calculate whether there is an opportunity for increased upside participation. This financial engineering case can be used to teach put-call parity, option strategies, and Black-Scholes pricing.

  • Learning Objectives

    Learning Objectives

    The case is targeted at MBA students as an illustration of the use and pricing of equity options. The case can be used to pursue the following teaching objectives: ? Illustrate financial engineering by structuring a PP-ELN. Using the principles of put-call parity, a PP-ELN can be structured either by packaging (1) call options and a zero-coupon bond, or (2) a long stock exposure together with a protective put. ? Apply Black-Scholes model pricing to call options. ? Discuss option strategies, in particular a collar strategy.