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FINANCIAL MARKET COURSES

Power Reverse Dual Currency (PRDC) Notes

Power reverse dual currency (PRDC) notes represent perhaps the most important product in the extensive Japanese structured note market. They are an interesting example of the way in which structurers can exploit the difference between the 'risk-neutral' assumptions underlying the derivative market and the more prevalent assumptions that exist in the 'real world'. The risk-neutral framework generates implied forwards in the USD/JPY FX market which, given the market interest rate differential, are very different from today's spot levels – different enough to be attractive.

 

While the instrument itself is well understood, and has been issued in such quantities that it is almost considered a 'vanilla' instrument amongst investors, the structuring and hedging of a PRDC note is highly complex. This course tackles many of these complexities by examining in detail the structures and risks associated with these notes.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify the key characteristics of power reverse dual currency (PRDC) notes

    Describe the role of the key players in the PRDC note market

    Deconstruct a PRDC note structure

  • COURSE  OUTLINE

    Topic 1: Basics of PRDC Notes

    Fundamentals of PRDC Notes

    Evolution of PRDC Market

    Features of PRDC Notes

    Coupon Payoff

    Simple Variations of the PRDC Structure

    Complex Variations of thr PRDC Structure

    PRDC Example

    Redemption Amount

    Topic 2: Deconstructing the PRDC Structure

    Risks Involved

    PRDC Note Valuation Using Models

    Call Feature

    Dealer Positions

    Drawbacks of the PRDC Market

    PRDC Note Performance

    PRDC Market Performance

    Topic 3: PRDC Investors, Issuers, & Structures

    PRDC Participants

    o Investors

    o Issuers

    o Structurers

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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