Design of New Barrier Outperformance Certificates in Oil Market

This paper proposes new innovative financial instruments in oil market. Modifications of outperformance certificates with barrier, i.e. barrier reverse outperformance and barrier reverse outperformance certificates with cap have a significant place in the segment of partial guaranteed investment tools due to a security buffer. These modifications of outperformance certificates with barrier are designed with the aim to make a disproportionately higher profit in bear market. Certificates´ profit functions provided in an analytical form are described in detail. It has been proved that the certificates´ profit functions are designed using two groups of instruments, i.e. an underlying asset and a financial derivative on its underlying instrument, especially American vanilla and barrier options. Financial engineering principles are explored to the investment certificates creation using the analytical expression of the American-style of vanilla and barrier call/put options. Pricing formulas are developed for these certificates with a specification of the conditions for the issuer in the primary market with the aim to achieve a profit. Then some investment certificates for these categories of innovative products connected with the United States Brent Oil ETF on 1st December 2014 are created, analysed and compared to each other. Also, the investor´s best results at the future trade date are revealed. Our approach is based on real-traded American vanilla options data gained from Bloomberg. Due to lack of real-traded barrier options, the barrier option premiums are processed with Haug option pricing model in Bloomberg. The main aim is to prove the nature of barrier reverse outperformance certificates´ creation and their cap modification with the increasing of the intellectualization of all potential investors