EFTA Document EFTA01438039

Subject: RE: [/1 FX Trade idea: Time to buy USDJPY FVA? [C] From: Martin Zeman Date: Mon, 25 Sep 2017 08:29:41 -0400 To: Paul Barrett Cc: Vahe Stepanian Stewart Oldfi Xavier Avila Joshua Shoshan Davide-A Sferrazza Classification: Confidential Paul, Back to your question on how wide we make the vol markets on the USDJPY FVA idea we discussed Friday. The two-way price on the way in is half a vol wide max and possibly tighter. On the unwind the same or less. Meaning the total transactions costs between inception and unwind should be half a vol or less. Martin From: Paul Barrett [mailto: Sent: Friday, September 22 2017 8:16 AM To: Martin Zeman Cc: Vahe Stepanian < Shoshan ; Stewart Oldfield er Avila Joshua ; Davide-A Sferrazza Subject: Re: [/] FX Trade idea: Time to buy USDJPY FVA? [C] Looks interesting. EFTA01438039 Please clarify how DB looks at these. We assign a $ value per point with a linear payout in lyrs time? ISDA required? Paul Paul Barrett On Sep 22, 2017, at 7:57 AM, Martin Zeman wrote: Classification: Confidential Good morning, Paul, Not sure you look at FVA stuff, but this one in USDJPY looks good to me. Martin <image003.png> EFTA01438040 Trade Ideas Buy ly2y USDJPY FVA at 10.50% Current 2y Implied volatility is at 9.95% Rationale The USDJPY volatility curve has flattened and reduced over the past year: Implied volatility is around 10% for maturities between ly and 7y, is historically low and carries flat. Hence USDJPY provides interesting entry points to buy forward volatility Volatility of USDJPY long-dated forwards is extremely low, with changes in forward points often having opposite changes in spot (typical of carry trade dynamics). As a consequence, we view back-end volatility as trading at a premium Medium term vols (3y-5y) may therefore be more optimal points in the curve. Current ly2y forward implied is at multi-year lows and negative carry has substantially reduced making it an attractive part of the curve Finally, holding USDJPY volatility would historically been a good diversifier against tail risk Analysis Implied Volatility Curve vs past / Spot vol curve / 3m&6m realised volatility of the forward <image010.png> Forward Volatility Forward Starting Window ly 2y EFTA01438041 3y 4y 5y Underlying Window ly 10.0% 10.0% 10.1% 10.2% 10.2% 2y 10.1% 10.1% 10.2% 10.3% 10.5% 3y 10.3% 10.4% 10.6% 11.1% 4y 10.4% EFTA01438042 5y 11.0% 11.7% 12.3% 12.7% Volatility Carry Forward Starting Window ly 2y 3y 4y 5y Underlying Window ly -0.2% -0.1% -0.1% -0.1% -0.1% 2y EFTA01438043 -0.3% -0.2% -0.2% -0.3% -0.4% 3y -0.4% -0.4% -0.6% -1.0% 4y -0.5% -0.8% -1.3% -1.8% ly2y Forward Volatility is at the lows and so is vol carry EFTA01438044 <image011.png> <image012.png> Sources: Deutsche Bank, Bloomberg Finance L.P. Disclaimer: http://globalmarkets.db.com/new/content/3045.html <image001.gif> Martin Zeman Director I Key Client Partners Deutsche Bank Wealth Management DB Securities Inc 345 Park Avenue, 10154-0004 New York, NY, USA Tel. Mobi Emai KCP products and services are intended and available only for persons who are sophisticated institutional investors within the meaning of the FINRA Rule 4512(C)(3), and who are capable of evaluating the strategies, characteristics and investment risks of, and exercising independent judgment in evaluating, the ideas and products discussed herein. Trades and transactions are subject to relevant internal approvals of DBSI or its affiliates prior to execution, and the execution of any transaction or idea discussed herein is conditional on your becoming a client of Deutsche Bank. Key Client Partners (KCP) products, investment ideas and solutions and related matters discussed herein are provided for discussion purposes only, EFTA01438045 and strictly on a non-advisory basis. The KCP Americas desk does not provide investment advice. The information set forth herein is confidential and personal to you and is being presented for your information and for discussion purposes only. Any reproduction and/or redistribution thereof (in whole or in part) or disclosure of its content without our written consent is strictly forbidden. This communication does not create any legally binding obligation on the part of DBSI or any of its affiliates. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Please refer to https://db.com/disclosures for additional EU corporate and regulatory disclosures. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01438046