Design of Modified Express Certificates on One Underlying Asset

The aim of this paper is to focus on new, innovative financial instruments, specifically modifications of express certificates, namely Step-down and Memory express certificates. The creation techniques are introduced, employing a combination of zero-coupon bonds and vanilla put and/or barrier put options that play a significant role in financial engineering. The analyzed creation of express certificates is examined from the perspectives of issuers and potential investors. The methodology of the paper is based on European-style vanilla put and barrier put options. Due to the lack of real-traded European vanilla options and barrier options, the calculations of option premiums are conducted using the statistical program R. The evaluation of the analyzed express certificates is scrutinized with an emphasis on costs and profits for the issuer and potential investor. The theoretical evaluation of the introduced modifications of the express certificates is applied to the stocks of the European company Bayer AG. Additionally, an analysis of profitability for the issuer and investor is performed at maturity. Specific characteristics of the proposed modifications of the express certificates are highlighted and compared with one another. The minimum profit is presented for the issuer and the investor in an ideal situation. Proposed certificates can be part of a personal investment portfolio. The main objective is to demonstrate the nature of the creation of Step-down and Memory express certificates while enhancing the knowledge of all potential investors. The research has one limitation, which is the unavailability of European vanilla put and barrier put options for European companies. Therefore, the theoretical prices are calculated.