Structured products: market for structured products in Europe and Asia Pacific

Abstract

Financial derivatives are financial products, which derive their value from a separate underlying instrument(s), such as a stocks, bonds, currencies, interest rates etc. These products provide hedging opportunities to users. Additionally, the more standardized and liquid products are traded on exchanges and can be used to exploit arbitrage opportunities and engage in speculative trading. A structured product can be defined as a tailored product that is designed to meet specific needs of the buyer. Structured product are exposed to various risks such as interest rate risk, credit risk, volatility risk, foreign exchange risk, yield curve risk etc. Which might have a very limited effect on standardized products. Structured product are classified on the basis of the their payoff strategies and the risk-return profile they exhibit at the time of their maturity, (or early exercise, if permitted) . This is determined by the properties of the underlying assets as well as other market related factors. The composition of the most commonly traded product types has continuously evolved in European markets as a response to the changes in the pricing and regulatory environments. This has been reflected in terms of both issuance and trading of existing products. Some of these products include capped and uncapped calls, floaters, reverse convertibles, knock out options, and so on. The popularity of these products too has changed in this period, both in terms of anticipated payoffs as well as sales volumes.