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FINANCIAL MARKET COURSES

Target Redemption Notes (TARNs)

TARNs are notes that offer a potentially high-yielding short-term investment in exchange for investors assuming the risk of long-term poor performance. While targeted redemption has been most prominent in the interest rate world, a structured note in any asset class can be a TARN.

 

Valuing a TARN is complex, due to the path dependency of the structure. The high degree of path dependency means that a fairly sophisticated model needs to be used to value a TARN, even if the underlying coupons are fairly simple.

 

In this course, we will study the distinctive characteristics of TARNs. We will also look into the widespread applicability of the TARN concept. Finally, we will identify the valuation difficulties and analyze the approach taken to solving them.

  • OBJECTIVES

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

    Describe the key features of a target redemption note (TARN) and determine its coupons and redemption period

    Identify the key participants in the market for TARNs and describe their roles

    List the factors to be taken into consideration while valuing a TARN structure

  • COURSE OUTLINE

    Topic 1: Basics of Target Redemption Notes

    TARNs

    o Definition

    o Evolution

    TARNs – Structure

    o Coupon & Redemption

    o TARNs – Investors Perspective

    o Embedded Floor

    o Implied Forwards

    Topic 2: Variations of the TARN Structure

    TARNs – Variations

    o CMS Spread TARNs

    o FX-Linked TARNs

    o Equity- Linked TARNs

    Topic 3: TARNs – Market Participants

    TARNs – Market Participants

    o Investors

    o Issuers

    o Structurers/Distributors

    Topic 4: Valuation of TARNs

    Valuation of TARNs

    o Value of TARNs

    o Probability of Redemption

    o Path Dependency

    Complex Valuation Model

    o Libor Market Model

    o Monte Carlo Simulation

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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