Craig Novorr, Chief Investment Officer of Paragon Capital Management, LLC, explains that structured notes are senior unsecured debt issued by major banks and discusses their position in the debt ladder. Craig emphasizes that structured notes are a hybrid investment with zero coupon bonds and an option strategy, and their pricing is influenced by interest rates and volatility, measured by the VIX index. Craig describes Paragon Capital Management's approach to negotiating better terms by actively engaging with banks and creating competition.
*Introduction to Structured Notes:*
-Definition and Origin
-Issued by major banks as senior unsecured debt.
*Factors Affecting Pricing:*
-Interest rates and volatility (measured by VIX).
-Higher volatility leads to better negotiation terms.
*Paragon's Approach:*
-Direct negotiation with banks for better terms.
-Early morning contact to minimize market risk.
*Fee Considerations:*
-Paragon's uncapped notes with no front load.
-Efforts to reduce underwriting fees for better client terms.
*Risk Management and Benchmarking:*
-Downside protection through buffers or barriers.
-Benchmarking to broad-based indexes for reduced risk.
-Importance of correlated indexes for risk management.
0:00 *Intro*
0:11 *Video Series Outline*
0:27 *What is a Structured Note?*
0:46 *What does Senior Unsecured Debt Mean?*
1:16 *What Affects Pricing?*
2:46 *The Timing of Issuing Notes Example*
3:40 *Three parts of Structured Notes - Duration, Upside, and Downside Protection*
4:55 *Potential Fees In Structured Notes*
6:01 *Risk Management of Structured Notes*
7:06 *The Term _"Gearing"_*
7:30 *Benchmarking Structured Products*
9:13 *Conclusion*
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