barrier options vs turbo warrants

ewimp · November 19th, 2014, 12:46 pm

Hi!Sorry, I am re-posting this from the Student forum because I think it may be better suited here:Does anybody have an experiences regarding the differences between a normal knock-out barrier option and a turbo warrant (callable bull bear contract in asia). I know that the rebate (cash vs exotic) is different but I am sure this is not the only difference.Really I am interested to know why turbo warrants have such low vega....Thanks!

royalflush · November 20th, 2014, 9:34 am

The way I see turbos is that they are securitized CFD with a guaranteed stop. As they almost have a 100% delta wherever spot is trading they can't be compared with normel DOP (i.e. as in bonus certificates) or similar structures. The reason for the 0 vega is driven by the payout structure.Alles klar?Kind regards

JustusQuant · November 25th, 2014, 7:00 pm

The way I would intuitively replicate a Turbo is via buying/selling (and rolling) the corresponding futures contract. If the spot price hits the barrier, the position simply will be closed.

royalflush · December 8th, 2014, 8:00 am

This is how they do it. The bank is left with an overnight gap risk.