You should know these terms
glossary
Barrier: A barrier is a price threshold that serves as an additional protection mechanism for the investor in certain equity bonds. If the price of the underlying asset is below the strike price on the valuation date, but the barrier was never touched or violated, the investor receives the nominal value of the reverse convertible bond back.
Base price: Reference price of the underlying asset. If the underlying value is above the base price at the end of the term of the reverse convertible bond, the investor receives the nominal value of the reverse convertible bond back; if it is quoted below the strike price, the reverse convertible bond is redeemed in the form of shares. The exception is equity bonds with a built-in barrier.
Underlying value: The underlying asset is often referred to as the underlying. It is the financial instrument to which equity bonds (or other derivatives) refer.
Subscription ratio: The subscription ratio indicates how large the amount of the underlying asset that the investor receives if the redemption takes place through delivery of the underlying asset. The subscription ratio is determined on the day the reverse convertible bond is issued and is calculated as the nominal value divided by the strike price.
Clean price: Price of a reverse bond during stock market trading, which does not take into account the accrued interest.
Dirty price: Price of a reverse bond during stock market trading including the accrued interest.
Issuer: Legal entity under private law (usually a stock corporation) or under public law that issues securities.
Issuer risk: Risk that exists if the issuer of a security is no longer able to meet its payment obligations. Can mean a total loss of invested capital for investors.
Coupon: Formerly a physical interest note that indicates the agreed interest payments. Today, “coupon” generally only means the nominal interest rate on a security, usually a bond.
Nominal value: The face value, also known as face value, of a bond indicates the amount of money that the issuer of a bond owes the buyer.
Physical delivery: Redemption of a reverse convertible bond through actual delivery of the underlying asset (at the specified subscription ratio).
Remaining term: Number of days until the bond valuation date.
Risk buffer/security buffer: Distance between the price of the underlying asset and the base price set for a reverse bond. The larger the safety buffer, the less likely it is that the strike price will be undercut.
Volatility: Key figure for the fluctuation range of a security.