You should know these terms
glossary
Barrier: A barrier is a price threshold that serves as an additional protective mechanism for the investor in the case of certain reverse convertibles. If the price of the underlying is below the strike price on the valuation day, but the barrier has never been touched or breached, the investor gets back the face value of the reverse convertible.
base price: reference price of the underlying. If the base value is above the base price at the end of the term of the reverse convertible, the investor gets back the face value of the reverse convertible; if it is listed below the base price, the reverse convertible is redeemed in the form of shares. Reverse convertibles with a built-in barrier are an exception.
Underlying: The base value is often also referred to as the underlying. It is the financial instrument to which reverse convertibles (or other derivatives) refer.
subscription ratio: The subscription ratio indicates how large the amount of the underlying is that the investor receives if the redemption is made by delivery of the underlying. The subscription ratio is determined on the day the reverse convertible is issued and is calculated as the nominal value divided by the base price.
Clean Price: Price of a reverse convertible during stock exchange trading, which does not take into account the accrued interest.
dirty price Price of a reverse convertible during stock exchange trading including accrued interest.
Issuer: Legal entity under private law (usually a stock corporation) or under public law that issues securities.
Issuer risk: Risk that exists when the issuer of a security is no longer able to meet its payment obligations. Can mean the total loss of the invested capital for investors.
Coupon: Former physical interest coupon that states the agreed interest payments. Today, the term “coupon” generally only refers to the nominal interest rate on a security, usually a bond.
face value: The face value, also known as the nominal 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 through actual delivery of the underlying asset (at the fixed ratio).
Remaining term: Number of days until the bond’s valuation date.
Risk buffer/safety buffer: Distance between the price of the underlying asset and the strike price set for a reverse convertible. The larger the safety buffer, the less likely it is that the base price will be undercut.
Volatility: Indicator for the range of fluctuation of a security.