The judges for Hong Kong Exchanges and Clearing Limited's (HKEx) naming contest for listed Equity Linked Instruments (ELI) have chosen the Chinese short name 息股證, which implies that the holder of the most common type of ELI, Bull ELI, will receive either interest or the underlying stock at expiry of the ELI. Also, as part of its continuing efforts to educate investors and members of the public in valuing ELI, HKEx has posted a calculator on its website at www.hkex.com.hk to promote better understanding of the pricing of ELI.
The naming contest was organised to find an informal short Chinese name to complement the official Chinese name for listed ELI. The competition attracted more than 380 nominations from the general public, including some very interesting ideas.
The winning entry, submitted by Mr Luk Kai-kin, was chosen by a panel of judges comprising well-known market commentators Lennon Chan and Ricky Tam, and HKEx Deputy Chief Operating Officer Lawrence Fok.
"The winning short name has vividly described the structure of the instrument. It is not only easy to understand and pronounce, but also easy to remember. HKEx is very happy to have such value nominations," commented Mr Fok.
HKEx hopes the winning entry will be accepted by the market and become widely used in informal situations. The official Chinese name has been described as too long and difficult to remember.
Mr Luk will receive a first prize of $20,000. First runner-up Mr Kwok Yuk-fu, who suggested the name 息股票據 will receive $6,000, second runner-up Mr Wong Yuk-wai, who suggested the name 股或息 will receive $4,000, and the other 17 finalists will receive a souvenir.
New ELI Calculator
HKEx's new ELI Calculator allows investors to:
- Calculate the theoretical value of an ELI;
- Determine how the theoretical value will change when other factors change; and
- Compare the cost of an ELI with other similar products by calculating their respective implied volatility.
Profits from investing in ELI and similar products come mainly from the premium received in selling the embedded option. Higher implied volatility means that investors are receiving more option premium. It also means investors are paying a cheaper purchase price. On the other hand, lower implied volatility brings less option premium and a more expensive purchase price.
Investors need a Java plug-in for Windows to use the ELI Calculator and all calculated figures are for reference only.
"The ELI Calculator provides a tool to help investors in making investment decisions on ELI. By making the ELI Calculator available to the public, HKEx hopes that it will generate more discussion and research on the product, which have become increasingly popular among investors in recent years," said Lawrence Fok, Deputy Chief Operating Officer of HKEx.
"We also hope the ELI Calculator will create more research interest in developing other valuation models for the benefit of the whole market," Mr Fok added.
The ELI Calculator was jointly developed for HKEx by Dr Joseph Chan and Dr Louis Cheng of the Hong Kong Polytechnic University.
An Educational Article on the ELI Calculator by Dr Cheng and Kevin Cheng, Vice President, Market Development and Education, HKEx Exchange Business Unit is available on the HKEx website www.hkex.com.hk. Past educational articles are also available on the website.