Outperformance Certificate
An outperformance certificate is a structured financial product . With the help of this forward construction, which is documented in a certificate , it is possible to participate disproportionately (leveraged) in the development of an underlying asset above a certain base price. The underlying values of Outperformance Certificates are usually stocks or indices .
How an outperformance certificate works
Outperformance certificates are characterized by the following essential features:
- Underlying: This is the security on which the derivative construction evidenced in the certificate is based - for example a share.
- Duration : This is the period between the issue of the certificate and its repayment.
- Purchase quantity: This key figure indicates how many units of the base value can be purchased for a certificate.
- Determination date: This is the date on which the relevant price of the underlying for the redemption of the certificate is determined.
- Base price: This is the price threshold that must be exceeded on the determination date so that the certificate holder receives an additional amount.
- Leverage factor: This factor indicates the amount of outperformance of the certificate compared to the price development of the underlying asset above the base price.
On the day of repayment, the due date , the certificate holder receives at least the base amount. This base amount is calculated by multiplying the price of the base value on the determination date by the reference amount. If the underlying is quoted above the base price on the determination date, the investor will also receive an additional payment. The amount of this additional amount results from the difference between the price of the base value on the determination date and the base price of the certificate, multiplied by the leverage factor of the certificate.
If the price of the base value on the determination date is below the base price of the certificate, only the base amount will be paid out. The investment in the Outperformance Certificate thus corresponds - before costs - to the direct investment in the underlying. The certificate holder has to forego the payment of possible dividends.
The issuers construct outperformance certificates by using two call options . The first option has a base price of zero, the second option a base price equal to the base price of the certificate.
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- Alexander Szczesny: Warrants, certificates and structured products. (A guide to a better understanding of the derivatives world). 6th edition. HSBC Trinkaus & Burkhardt KGaA, Düsseldorf 2006.