Advanced guide to Structured Products - Learn about the types of Structured Products

They impact the price of structured products in different ways as this is what defines the bond or deposit. This is the most important factor for capital protected products: this is the part of the product which allows the full capital to be returned either at maturity, or if the conditions of the product are met and the plan matures early. A higher interest rate means less needs to be set aside to ensure a full return of capital and leaves more to spend on the options, generally making the investment return more favourable.

Following the 2008 crisis, the perceived counterparty risk became an increasingly important factor for investors and their advisors. The credit rating is usually inversely correlated to the credit spread that issuers pay for cash. As such, the higher the credit spread (i.e. the lower the rating), the higher the return offered.

This is a statistical measure of dispersion of potential returns around the current market price and is measured via the standard deviation of the underlying asset or market index. Generally, the higher the volatility, the riskier the asset and the more price variance there is likely to be. The volatility of the underlying asset is clearly important in assessing the likelihood of the option being exercised. It is also the one factor that cannot be directly observed. In summary, low volatility makes options cheaper, while high volatility makes them more expensive.

Equity holders, as owners of the company, are generally entitled to a share of the profits, which may be paid to them in the form of dividends. On structured products, the investor is not entitled to receive the dividends that the stock pays. However, the dividend is discounted from the option premium, allowing the option to become cheaper, hence increasing participation or capital protection.

This is the level at which the structured product payoff starts to provide a positive return. Usually, if the strike price is above the underlying price, the option cost decreases as the likelihood of a positive return is lower compared with a strike price below the underlying spot price.

This is the period between the initial date and the maturity date. Usually, the cost of an option increases with the term. Nevertheless, the annualised cost decreases. This is why when interest rates are low, the term of structured products increases to offer the same participation or capital protection.

A statistical measure of dispersion of potential returns around the current market price which is measured via the standard deviation of the underlying asset or market index. The higher the volatility, the riskier the asset and the more price variance there is likely to be. The volatility of the underlying asset is clearly important in assessing the likelihood of the option being exercised. It is also the one factor that cannot be directly observed. In summary, high volatility makes the investor obtain a higher yield.

For capital at risk products, it is common to reduce risk by introducing a barrier level below the initial strike level. This means that the capital is protected until this barrier is reached (soft protection). As such, the lower the barrier level, the higher the protection level is likely to be.

Equity holders, as owners of the company, are generally entitled to a share of the profits, which may be paid in the form of dividends. On structured products, investors are not entitled to receive dividends. However, the dividend is discounted from the option premium, allowing the option to become cheaper, hence increasing participation or capital protection.

This is found in many of longer maturities of yield enhancement products, and allows investors to obtain the capital and coupons before maturity if the underlying is at or above its initial level on a specific observation date. This feature means that the more frequent observation dates are, the lower the potential return to the client.

A statistical measure of dispersion of potential returns around the current market price, measured via the standard deviation of the underlying asset or market index. The higher the volatility, the riskier the asset and the more price variance there is likely to be. The volatility of the underlying asset is clearly important in assessing the likelihood of the option being exercised. It is also the one factor that cannot be directly observed. In summary, high volatility makes the investor obtain a higher yield.

Equity holders, as owners of the company are generally entitled to a share of the profits, that may be paid to them in the form of dividends. On structured products, they are entitled to receive dividends. However, the dividend is discounted from the option premium, allowing the option to become cheaper, thus increasing participation or capital protection.

Following the 2008 financial crisis, the perceived counterparty risk became one of the most important factors for investors and their advisors. The credit rating is generally inversely correlated to the credit spread that issuers pay for cash: as such, the higher the credit spread (i.e. lower rating), the higher the return offered.