EFTA01435952

Subject: DB FX trade idea: EURZAR-USDZAR correlation swap From: Martin Zeman Date: Tue, 28 Nov 2017 To: "Paul Barrett ( Cc: Stewart Oldfield Xavier Avila Joshua Shosha Liam Osulliva Paul, 12:42:02 -0500 this could be an interesting trade on ZAR without really getting directional exposure to it. The payout is defined as a $amount per point of correlation. So that means selling the correlation at 80% for $10k per point of correlation is a max loss of $200k. Let me know if you'd like to discuss. Martin Trade Idea Sell 6m EURZAR-USDZAR correlation swap at 80% (USD payout) Sell ly EURZAR-USDZAR correlation swap at 80.5% (USD payout) Rationale EURZAR-USDZAR implied correlations are close to the highest levels since 2007 (see graph 1) This has been driven by ZAR implied volatilities trading at their highest levels relative to EURUSD volatility since the financial crisis (see graph 2) EFTA01435952 Since 2007 the highest 6m realized correlation is 94% and the lowest is 41%. For ly the highest is 93% and the lowest is 48%. Looking at shorter dated metrics, 3m realized correlation has fallen from recent highs to now sit close to current strikes (see graphs 3 & 4) The correlation swap provides a limited loss way of fading elevated ZAR volatilities and buying cheap EURUSD volatility, which could perform in the event of any Eurozone concerns such as the Italian election Graphs Graph 1: EURZAR-USDZAR implied correlation at highs Graph 2: ZAR vols elevated compared to EURUSD vols Graph 3: 6m realized correlation vs. strike Graph 4: ly realized correlation vs. strike EFTA01435953 Sources: Deutsche Bank, Bloomberg Finance L.P. Disclaimer: http://globalmarkets.db.com/new/content/3045.html {cid:[email protected]} Martin Zeman Director I Key Client Partners Deutsche Bank Wealth Management DB Securities Inc 345 Park Avenue, 10154-0004 New York, NY, USA Tel. +1(212) 250-0432 Mobile Email KCP products and services are intended and available only for persons who are sophisticated institutional investors within the meaning of the FINRA Rule 4512(C)(3), and who are capable of evaluating the strategies, characteristics and investment risks of, and exercising independent judgment in evaluating, the ideas and products discussed herein. Trades and transactions are subject to relevant internal approvals of DBSI or its affiliates prior to execution, and the execution of any transaction or idea discussed herein is conditional on your becoming a client of Deutsche Bank. Key Client Partners (KCP) products, investment ideas and solutions and related matters discussed herein are provided for discussion purposes only, and strictly on a non-advisory basis. The KCP Americas desk does not provide investment advice. The information set forth herein is confidential and personal to you and is being presented for your information and for discussion purposes only. Any reproduction and/or redistribution thereof (in whole or in part) or disclosure of its content without our written consent is strictly forbidden. This communication does not create any legally binding obligation on the part of DBSI or any of its affiliates. EFTA01435954 This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Please refer to https://db.com/disclosures for additional EU corporate and regulatory disclosures. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01435955