9.00% p.a. Multi Barrier Reverse Convertible on Carrefour, Danone, LVMH (Issuer-Callable)

1. Fixed coupons: The investor receives EUR 22.50 per EUR 1,000 (2.25% of notional) every quarter — i.e. 9.00% p.a. — regardless of how Carrefour, Danone and LVMH perform, for as long as the product is outstanding.
2. Issuer call: The issuer may redeem the product early at each quarterly observation date, returning 100% of the notional plus the coupon then due. In the simulation, we assume the issuer calls when the worst-performing stock is back at or above its starting level (a standard issuer-optimal behaviour for a high-coupon reverse convertible).
3. Maturity without a barrier event: If none of the three stocks ever traded at or below 49% of its starting level, the investor receives 100% of the notional back.
4. Maturity with a barrier event: If any stock traded at or below 49%:
   • If the worst-performing stock at maturity is at or above its starting level → the investor still receives 100%.
   • If the worst-performing stock at maturity is below its starting level → the investor receives shares of that worst stock (cash equivalent of its final level), absorbing the full loss of the worst performer.

In short: high fixed income while the market behaves, conditional protection against a severe (-51%) shock, but full worst-of downside if that shock actually occurs.

Attractive Features (Pros)

• High contractual coupon of 9.00% p.a. paid quarterly (2.25% per period), independent of underlying performance — a yield well above the EUR risk-free rate (≈2.0%).
• Low loss probability: in only ≈3.6% of simulated scenarios does the investor lose money; ≈50.9% of scenarios deliver a total return of at least 10%.
• Deep barrier (49%): the barrier is breached only if any one of the three stocks falls more than 51% below its initial level (an any-of condition); the worst-of conversion at maturity then applies.
• Improved risk profile vs. direct equity investment: annualized volatility of the product (7.12%) is far below that of the underlying basket (≈20%), and the probability of loss is ~7.5× lower.
• Issuer call is generally friendly to the investor: early redemption returns full notional plus coupon and shortens credit exposure.

Considerations (Cons)

• Capped upside: the coupon is the only compensation; when the market rallies, the product lags the underlying basket (visible in the scatter plot above the 1:1 line).
• Worst-of conversion tail risk: when the barrier is breached, the investor bears the full decline of the worst stock, not the basket average — this is why the product's 99% VaR (-32.35%) is worse than the underlying's (-20.38%), even though losses are far less frequent.
• Early call reduces total coupons: the issuer called in ~50% of simulated paths, shortening the average holding period to ~13 months (e.g., 29% of paths last only 6 months / 2 coupons).
• Credit risk of the issuer (Leonteq Securities AG) and guarantor (Aargauische Kantonalbank) applies in addition to market risk.

Caveats on the Numbers

• Short holding periods & annualization: because many simulations end early (6–15 months), annualized figures can look extreme — especially for the underlying, whose early exits coincide with strong up-markets (its mean annualized return of 17.79% reflects this conditioning). The product's annualized return is capped near 9% and is far less sensitive. Total returns and holding periods should be interpreted alongside annualized figures.
• Barrier observation granularity: the contract observes the barrier continuously, but the monthly-stepped simulation checks it monthly, which may understate barrier-event frequency (simulated ≈3.7%).
• The issuer-call trigger is not defined in the term sheet and is modeled under a stated assumption (call when worst performer ≥ 100% of initial level).