Background Lack of knowledge and high transaction costs makes it difficult for private investors to follow the investment strategies that structured products offer.
They can be considered as a second generation of OECs with a conditional capital protection feature. We examine three different structured products.
Main reason of this development is; structured products are attracting the retail investors with their advantages. No dividends or coupons are paid by the underlying asset Markets are liquid enough to buy or sell any amount of stock or options anytime. Rainbow options are usually calls or puts on the best or worst of n underlying assets, or options which pay the best or worst of n assets.
Main advantages provided by structured products to their investors are; Higher return: Depending on the risk level of a structured product, it is possible to have a higher return than traditional bonds or deposits by investing in a structured product.
The main difference between products with exotic characteristics is that they contain an exotic option rather than j]ust a standard one that makes the pricing for these instruments complex. For corresponding bonds the coupon typically exceeds the market interest rate.
The theoretical part presented a structural model to evaluate discount certificates that took into account the risk of issuer defaulting. Diversification: The ability to customize a variety of assumptions into one instrument is one of the principle attractions of structured products for retail investors because that provides attractive diversification properties to the investors Lamb Evolution of Structured Products Structured products became popular in the U.
The structured products that have no capital guarantee give the investors a prospect to attain an attractive maximum return, but have no guarantee that the capital would be paid back to them.