12.70% p.a. Multi Barrier Reverse Convertible on Alphabet, IBM & Microsoft (Callable)

The product behaves bimodally: it either delivers roughly the full coupon (≈12–13% p.a.) or, in the minority of paths where the worst-of barrier is breached and a stock finishes below its starting level, it takes that stock’s downside. Only ~0.01% of simulations land between 0% and 10% annualized.

1. You collect a fixed 12.70% p.a. coupon every quarter, regardless of how the three stocks perform — as long as you hold the note.
2. Your capital is protected as long as no stock crashes. If none of GOOGL, IBM or MSFT ever trades at or below 49% of its starting price during the term, you get your full 100% back at the end.
3. If any one stock touches 49% (“barrier event”), protection is lost. At maturity you then take the worst-performing stock’s fate:
   • If that stock finishes below its start → you receive its (depreciated) value, i.e. you take the loss.
   • If it has recovered above its start → you still get your full 100% back.
4. The upside is capped. Even if all three stocks double, you only get par plus coupons — never more.
5. The issuer can call the note early (from month 6, quarterly). If called, you receive par plus the coupon due, and the note ends.

The product gives up a large part of the basket’s expected return (it is capped) but delivers it with roughly one-third of the volatility and a far lower probability of loss.

Where the product adds value

• High, predictable income: a 12.70% p.a. coupon — roughly 3.4× the current 3.74% USD risk-free rate — paid quarterly irrespective of market direction.
• Deep, continuous barrier (49%): each stock must fall more than half before protection is lost. The estimated probability of a barrier event is only ~5.5%.
• Low realized volatility (~8.7%) and a low loss probability (~5.3%). Relative to the equal-weight basket of the same three stocks, the product delivers a slightly better return-per-unit-of-risk (0.78 vs 0.54) and a materially better loss profile (5.3% vs 29.2%).
• Frequent early redemption: the issuer is modelled as calling in roughly 47% of paths (concentrated at month 6), returning capital early and recycling the high coupon — the expected holding period is ~13.4 months vs the 18-month maximum.

Trade-offs worth noting

• Upside is fully capped. In the simulations the underlying basket’s 99th-percentile annualized return is very high (~160%), whereas the product cannot exceed ~+13% p.a. In strong rallies the product substantially lags the stocks.
• Concentrated downside when it happens. Although losses are rare, the 99% VaR is −30.5% — comparable to the basket’s (−28.4%) — because a breached barrier in a deeply falling worst-of name transmits nearly the full drawdown. Losses are lumpy, not gradual.
• Worst-of linkage: with three names, the barrier is tested against the weakest stock; the effective probability of a barrier event is higher than for any single name.
• Issuer credit risk (Basler Kantonalbank) applies to all payments; the note is unsecured.
• Return is sensitive to the assumed equity risk premium embedded in the drift; a lower long-run equity return would compress both the product and the benchmark results (the coupon itself is contractual and unaffected).