EFTA01387014.pdf

To: 'Paul Barrett Cc: Stewart Oldfield Joshua Shoshan Martin Zeman Subject: RE: DB FX trade idea: EURZAR-USDZAR correlation swap Paul, Vimal is working on the analysis and we'll send soon with the termsheet and mathematical claculations of implied and reaslied correlation. See also below the same idea but in EURMXN-USDMXN, the strike is a bit lower but Vimal wanted to point out that the historical realized has gone also much lower than in the ZAR situation, so the potential for positive payout seems higher here than in ZAR. Vimal also told me that we have seen clients do more the MXN and TRY crosses than the ZAR one, but typically MXN and TRY are currencies with more interest. Talk soon. Thanks DB FX Trade Idea FuRmyN-usry,ixt9 nRn Trade Idea • Sell ly EURMXN-USDMXN correlation swap at 77% • Sell 2y EURMXN-USDMXN correlation swap at 77% Rationale • EURMXN-USDMXN implied correlations are close to the highest levels since 2007 (see graph 1) • This has been driven by MXN implied volatilities trading at their highest levels relative to EURUSD volatility since the financial crisis, largely a result of concerns regarding the Mexico elections in 2018 (see graph 2) • Since 2007 the highest ly realized correlation is 87% and the lowest is 11%. For 2y the highest is 83% and the lowest is 44%. Whilst current levels of 1y and 2y realized correlations are close to their highest levels, 3m realized correlation has fallen from recent highs to now sit close to current strikes (see graphs 3 & 4) • The correlation swap provides a limited loss way of fading elevated MXN volatilities and buying cheap EURUSD volatility, which could perform in the event of rising Italian election and Catalonia independence concerns Graphs Graph 1: EI,IRMXN-USDNIXN implied correlation at highs Graph 2: MXN vols elevated compared to EURUSO vols /OM 5 9034 0 toe -at -s 7056 r 1034 -10 5036 -15 401 EuR14014.1SOMOt 1y impliedcar -20 —EUR1150-EURMXN ly implied spread 3016 — EURMOMJSOMXN 2y impel car EURUS0USONECN ly irroied yolspead 2096 1 -25 2OO7 3301 2003 2010 2011 2012 2013 2014 2015 2016 2017 2007 20W 2009 2010 3311 2012 2013 2014 2015 3316 2017 Graph 3: 1v realized correlation vs. strike Graph 4: 2y realized correlation vs. strike CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0089016 CONFIDENTIAL SDNY_GM_00235200 EFTA01387014