From: Martin Zeman Sent: 9/22/2017 7:57:40 AM To: Paul Barrett CC: Vahe Ste anian ; Joshua Shoshan I ; Davide-A Sferrazza Subject: FX Trade idea: Time to buy USDJPY FVA? (C) Classification: Confidential Good morning, Paul, Not sure you look at FVA stuff, but this one in USDJPY looks good to me. Martin Xavier Avila DB FX Trade Idea 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 154: - 13% — e.1 la: '7 --••••••• Id .y iF aft> ----Ino ad Vohr-ii ea. - 3v ago — Spa maimed Votatitr —Err oaleadVa:acEirt • Fwd retthsad VCit kite -twit ioc. 42:.$•15 ty-: Nc...22 7.6-24 Stp-.27 Fotward Volatility Forward Starting Window ly 2y 3y 4y Sy Underlying Window ly I ! III SOA%'°I 10.1% 10.2% 10.2% 2Y IMMO 10.1% 10.2% 10.3% 10.5% 3y 10.3% 10.4% 10.6% 11.1% 4y 10.4% 10.8% 113."% 119% Sy 11.0% 11.7% 12.3;,, Volatility Cary Forward Starting ndon ly 2y ly -0.2% -0.154 .0.1% .0.1% .0.1% CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0087213 SDNY_GM_00233397 EFTA01385834