Exotic Outperformance Certificates — The Case of Outperformance Certificates Plus

In this paper we introduce a new financial product named Outperformance Certificates PLUS and we provide detailed descriptions of the product specifications. We show that the payoff of an Outperformance Certificates PLUS can be duplicated by the combination of a long position in the underlying asset, a short position on zero coupon bonds, a long position in down-and-out call options on the underlying asset, and a long position in down-and-in call options on the underlying asset. We develop a pricing formula to price the certificates. Finally, we apply the pricing model for Outperformance Certificates PLUS to a certificate issued by Commerzbank AG to examine how well the model fits empirical data. The results are in line with previous studies pricing other structured products