Structured products

Abstract

Structured investments arise from the needs of companies that wanted to issue debt more cheaply. This could have been done by issuing a convertible bond—i.e., debt that could be converted to equity under certain circumstances. Investment banks decided to add features to the basic convertible bond, such as increased income in exchange for limits on the convertibility of the stock, or principal protection. These extra features were all strategies investors could perform themselves using options and other derivatives, except that they were pre-packaged as one product. Interest in these investments has been growing in recent years, and high-net worth investors now use structured products as way of portfolio diversification. Structured products aspire to provide investors with highly targeted investments tied to their specific risk profiles, return requirements and market expectations.