EFTA Document EFTA01436019

Subject: RE: DB FX trade idea: EURZAR-USDZAR correlation swap From: Xavier Avila Date: Fri, 01 Dec 2017 To: "Paul Barrett ( Cc: Stewart Oldfield Joshua Shosha Martin Zeman 15:54:14 -0500 Paul, Vimal is working on the analysis and we'll send soon with the termsheet and mathematical claculations of implied and reaslied correlation. See also below the same idea but in EURMXN-USDMXN, the strike is a bit lower but Vimal wanted to point out that the historical realized has gone also much lower than in the ZAR situation, so the potential for positive payout seems higher here than in ZAR. Vimal also told me that we have seen clients do more the MXN and TRY crosses than the ZAR one, but typically MXN and TRY are currencies with more interest. Talk soon. Thanks Trade Idea Sell ly EURMXN-USDMXN correlation swap at 77% Sell 2y EURMXN-USDMXN correlation swap at 77% Rationale EURMXN-USDMXN implied correlations are close to the highest levels since 2007 (see graph 1) This has been driven by MXN implied volatilities trading at their highest levels relative to EURUSD volatility since the financial crisis, largely a result of concerns regarding the Mexico elections in 2018 (see graph 2) Since 2007 the highest ly realized correlation is 87% and the EFTA01436019 lowest is 11%. For 2y the highest is 83% and the lowest is 44%. Whilst current levels of ly and 2y realized correlations are close to their highest levels, 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 MXN volatilities and buying cheap EURUSD volatility, which could perform in the event of rising Italian election and Catalonia independence concerns Graphs Graph 1: EURMXN-USDMXN implied correlation at highs Graph 2: MXN vols elevated compared to EURUSD vols Graph 3: ly realized correlation vs. strike Graph 4: 2y realized correlation vs. strike EFTA01436020 Sources: Deutsche Bank, Bloomberg Finance L.P. Disclaimer: http://globalmarkets.db.com/new/content/3045.html From: Martin Zeman Sent: Tuesday, November 28, 2017 12:42 PM To: Paul Barrett Cc: Stewart Oldfield Joshua Shoshan Osullivan Subject: DB FX trade idea: EURZAR-USDZAR correlation swap aMIMMa° • Xavier Avila Paul, Liam 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 EFTA01436021 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) 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 EFTA01436022 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. 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