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Sunday, March 14, 2010

Accumulator (Structured product)

Accumulator is financial derivative product. Last financial crisis, Hong Kong folks dubbed this pain investment as "I kill you later". How does it work...

Basic idea is an issuer (banker/broker) sells accumulator contract to buyer (investor) for a underlaying stock at a predetermined fixed price (strike price), settled periodically. this allows the investor "accumulate" the underlaying stock over the term period of contract.

Example:
An investor agreed to "accumulate" 100 shares a month at fixed price of $80/share for one year contract. Below diagram illustrated for scenarios of underlaying stock go up and down.

Bear in mind, all investment products have its risk.