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Principles of Financial Engineering, 3rd Edition by Elsevier Science

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Chapter 20

Essentials of Structured Product Engineering

In this chapter, we build on our earlier discussions and describe how equity and fixed-income structured products can be created. We discuss the basic building blocks of these structured products, discuss how they can meet the issuer’s and buyer’s objectives. We highlight real-world complications in manufacturing such products related to hedging and liquidity issues. The first part of the chapter deals with equity structured products and covers capital guaranteed products, digital, rainbow, and cliquet options as well as reverse convertibles. The second part of the chapter discusses fixed-income structured products including CMS (constant maturity swap) and CMS-linked structures. Some CMS-based ...

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