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How to Value Shares and Outperform the Market by Glenn Martin

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16. Evaluating Structured Product Investments

Structured products, which are marketed by several banks and building societies, take a variety of forms. Often they promise a cash return linked to the performance of the FTSE100, measured against a strike price taken on the day the investment begins. Frequently the return depends on the price of the FTSE100 in five years’ time. As the System projects the price of the FTSE100 in five years’ time, it is ideally suited, in combination with stress-testing, to assess whether these FTSE100-linked products merit investment.

Two points are worth emphasising:

  1. The product structures depend on derivatives issued by financial institutions. The products therefore involve a credit risk should the issuing ...

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