EFTA Document EFTA01434406

Subject: RE: [/] FX Trade idea: Time to buy USDJPY FVA? [C] From: Xavier Avila <ffi Date: Fri, 22 Sep 2017 08:50:35 -0400 To: Paul Barrett Martin Zeman Cc: Vahe Stepanian Stewart Oldfield Joshua Shoshan Davide-A Sferrazza Paul, FVA is typically a forward delivered FX straddle, you buy (or sell) the fwd straddle at the preagreed spot price today. Before it settles you have no delta risk as strike not set, once it settles you have delta risk but typically you sell the straddle as you are only interested in the vol trade (typically) not delta. You decide spot what notional of the straddles you want to own (or sell) forward or you can also specify a vega notional. If you dont want to bother about delivery of straddle, we can also agree to cash settle the OTC contract at the delivery time although implied vol fixings dont really exist (last time I checked) so if you deliver and sell you manage the exit, you can also choose to do the exit with another bank if price better. Vol swaps (unlike equity that trades Var swaps, FX standard is Vol Swaps) and Corr Swaps it's always cash settled, you buy or sell implied vol or corr vs the realised result, and yes we typically specify the OTC Contract as a linear payout of USD cash per % difference. We also do FX options contingent on vol knock outs and even FVA, Vol Swaps, Corr Swaps contingent on delta (multi currency) knock outs. In FX literally there are very few things we cannot do in vol and corr space with very reasonable bid offers. All FX we do is OTC except bits and pieces, so yes we need the ISDA and to double check you guys are up and running in the systems with all the extra docs we might need. We are working to it as quick as we can. Thanks Xavier Original Message From: Paul Barrett [ Sent: Friday, September 22, 2017 08:15 AM Eastern Standard Time To: Martin Zeman Cc: Vahe Stepanian; Stewart Oldfield; Xavier Avila; Joshua Shoshan; Davide-A Sferrazza Subject: Re: [/] FX Trade idea: Time to buy USDJPY FVA? [C] EFTA01434406 Looks interesting. Please clarify how DB looks at these. We assign a $ value per point with a linear payout in lyrs time? ISDA required? Paul Paul Barrett On Sep 22, 2017, at 7:57 AM, Martin Zeman e > wrote: > Classification: Confidential Good morning, Paul, Not sure you look at FVA stuff, but this one in USDJPY looks good to me. Martin <image003.png> Trade Ideas Buy ly2y USDJPY FVA at 10.50% Current 2y Implied volatility is at 9.95% EFTA01434407 Rationale The USDJPY volatility curve has flattened and reduced over the past year: Implied volatility is around 10% for maturities between ly and 7y, is historically low and carries flat. Hence USDJPY provides interesting entry points to buy forward volatility Volatility of USDJPY long-dated forwards is extremely low, with changes in forward points often having opposite changes in spot (typical of carry trade dynamics). As a consequence, we view back-end volatility as trading at a premium Medium term vols (3y-5y) may therefore be more optimal points in the curve. Current ly2y forward implied is at multi-year lows and negative carry has substantially reduced making it an attractive part of the curve Finally, holding USDJPY volatility would historically been a good diversifier against tail risk Analysis Implied Volatility Curve vs past / Spot vol curve / 3m&6m realised volatility of the forward <image010.png> Forward Volatility Forward Starting Window ly 2y 3y 4y 5y Underlying Window ly EFTA01434408 10.0% 10.0% 10.1% 10.2% 10.2% 2y 10.1% 10.1% 10.2% 10.3% 10.5% 3y 4y 5y 11.0% EFTA01434409 Volatility Carry Forward Starting Window ly 2y 3y 4y 5y Underlying Window ly -0.2% -0.1% -0.1% -0.1% -0.1% 2y -0.3% -0.2% -0.2% -0.3% -0.4% EFTA01434410 3y -0.4% -0.4% -0.6% -1.0% 4y -0.5% -0.8% -1.3% -1.8% ly2y Forward Volatility is at the lows and so is vol carry <image011.png> <image012.png> EFTA01434411 Sources: Deutsche Bank, Bloomberg Finance L.P. Disclaimer: <image001.gif> Martin Zeman Director I Key Client Partners Deutsche Bank Wealth Management DB Securities Inc 345 Park Avenue, Tel. Mobile Email 10154-0004 New York, NY, USA 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. 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Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. 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. EFTA01434413