In finance, a Bond+Option is a capital guarantee product that provides an investor with a fixed, predetermined participation to an option. A capital guarantee product means that when an investor buys or "enters" this specific Derivative security, he is guaranteed to get back at maturity Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures Buying the zero coupon bond ensures the guarantee of the capital, and the remaining proceeds are used to buy an option. A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its Face value, with the face value
As an example, we can consider a bond+call on 5 years, with Nokia as an underlying. Nokia Corporation (pronunciation /'nɔkiɑ/),,) is a Finnish multinational Communications Corporation, headquartered In finance the underlying of a derivative is an Asset, basket of assets, index, or even another derivative such that the cash flows of the Say it is a USD currency option, and that 5 year rates are 4. A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is 7%. That gives you a zero coupon bond price of 
. A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its Face value, with the face value
Say we are counting in units of $100. We then have to buy $79. 06 worth of bond to guarantee the 100 to be repaid at maturity, and we have $20. 94 to spend in an option. Now the option price is unlikely to be exactly equal to 20. 94 in this case, and it really depends on the underlying. Say we are using the Black-Scholes price for the call, and that we strike the option at the money, the volatility is the defining part here. The term Black–Scholes refers to three closely related concepts The Black–Scholes model is a mathematical model of the market for an equity in which the equity's "In the money" redirects here for the poker term see In the money (poker. A call on an underlying with implied volatility of 25% will give you a Black-Scholes price of $15. In Financial mathematics, the implied volatility of an option contract is the volatility implied by the Market price of the option based on The term Black–Scholes refers to three closely related concepts The Black–Scholes model is a mathematical model of the market for an equity in which the equity's 7 while with a volatility of 45%, you'd have to pay $21. 76.
Hence the participation would be the proportion you can get with the money you have.
- In the 25% vol case you get a 133% participation
- In the 45% vol case, 96%.
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