EFTA01365334

3 December 2013 US Derivatives Spotlight [Figure 3: Current premia for long-dated SPX calls and call spreads is low 35% • Current Preemie 30% A 26% - 20% 15% - 10% A 6% - 0% SPX 18M SPX 36A1 SPX 60M SPX 18M SPX 36M SPX 60M SPX 60M 100% 100% 100% 107.5% 120% 140% 100%-140% Saw Dad.. Sent AMPS.) AN" regrew. etre Otteenc• Pawn the magnum ant/ monlmon a fly al gotten pans "not .45.+2007 M-to tes weary AY Osionc•Innivin ale 75th a-4 nth ins* at to w onoropreave swan-2m The Ms bevies's'', Wow On tepronno rho ~snarl epton pans Onctarr Nat SOO an renown?. one — a Mt warty The main driver of the depressed option premium is due to SPX spot implied which has declined sharply throughout 2013 (see Figure 4). Further downward pressure on SPX long-dated call premia is also due to low rate volatility and the decreased correlation between rates and equities (longer maturity equates to greater sensitivity to the volatility of the forward vs. short-dated options, see Figure 5). I Figure 4: SPX long-dated ATMS implied vols are near historically low levels... 5°" 46% 1 40% 1 35% 1 30% 4 25% 20% .1 15% 10% I 18M —36M —60M Jan-03 Jan-05 Mem Oath* Brit Jan-07 Jan-09 Jan-11 Jan-13 :Figure 5: ...as are rate implied volatility and rate-equity (correlations' 250 200 150 100 50 0 -50 —3M ATMF implied volatility for 5Y swaption -100 —3M realized correlation between 5Y rates and SPX Mtiy.05 May-07 May-09 May-11 May-13 Sow*. Detach* Sent Stant*. /WM* LP WO SPAY /0~ combos at • wow ft...new/Ay to cniusiblatiy A second effect is due to the SPX forward itself which is materially lower vs. the spot level. This makes the SPX option premia appear low optically. The following equations help understand the drivers of the forward: Forward = Spot + Cost of Carry Cost of Carry = Spot x (Interest Rate - Repo - Dividend Yield)x Time Page 4 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0056038 CONFIDENTIAL SDNY_GM_00202222 EFTA01365334