FINANCIAL ENGINEERING OF A REVERSE TWIN-WIN CERTIFICATE THROUGH REPLICATION METHOD

Abstract

This paper examines a rarely studied type of structured product—re-
verse twin-win certificates—focusing on their design, pricing, and po-
tential for risk management and portfolio diversification. It introduc-
es two versions of the product: capped and uncapped, each offering

different risk-return profiles depending on market conditions. These
certificates are applied to the case of a Bulgarian technology company,
representing an emerging market context where such instruments are
largely unexplored. The pricing is carried out using a widely accepted

method that replicates the product’s return using a combination of ba-
sic financial instruments and financial options. This approach allows

for transparent and flexible valuation. Numerical simulations show

that uncapped reverse twin-win certificates perform well in strong-
ly declining markets, offering high upside when the underlying asset

falls sharply. Capped versions are more conservative, limiting both
risk and return—making them more appropriate for cautious investors
or moderately volatile markets. The study highlights how structured
products like these can be adapted to different investment strategies,
from speculation to hedging. It also contributes to the literature by
extending structured product analysis to the underrepresented setting
of emerging markets.