The term structured products is sometimes used to connote anything new and innovative in the financial markets. However, more narrowly, structured products are defined as products that are based on an underlying security (e.g., single securities or indexes such as stocks, baskets of stocks, commodities, debt issuances, or foreign currencies). Indeed, after a review of the ways in which the term has been used in the vernacular, one is tempted to loosen the definition even further: a structured product is anything that varies in any meaningful way away from some original underlying instrument. Now, this is purposely vague in order to highlight the fact that virtually anything and everything can be described as a structured product. Therefore, we begin with a conceptual discussion of structured products, including various examples of what are and what are not considered structured products and why or why not this is the case.
This chapter is intended to provide an overview of structured products and their applications with a specific focus on equities and credit. It is in the interest of brevity that we do not include summary sections on commodities or interest rate and forex structured products. Those are covered elsewhere in this book.
A Note on Derivatives
The growth in structured products occurred as an extension of the growth in the derivatives market as a whole; in fact, separating the one ...