APPLICATIONS OF OTC EQUITY DERIVATIVES
The array of OTC derivative-based equity portfolio management strategies cuts across the two primary categories of investment philosophy—active and passive management. We consider several strategies in this section, which are listed in Exhibit 15.1
, together with the purpose of using an OTC derivatives and a product candidate.
summarizes various OTC equity derivative structures in terms of the role of derivatives for long-term investors and hedgers.269
A broad spectrum of equity investment activities emanating from the role of derivatives can benefit from these three basic categories of OTC equity derivative structures: options and exotics, equity-linked notes and equity swaps.
The Use of OTC Derivatives for Equity Strategies
|Equity Strategy ||Purpose ||Product Candidate |
|Return-enhancement strategies||Outperform benchmark||Equity swap|
|Hedging strategies||Risk management||Exotics, swaps, debta |
|Spread strategies||Risk management||Equity swaps, exotics|
|Market access strategies||Reduce costs||Swaps, debt, warrants, exotics|
|Changing equity exposure||Reduce costs|
|Index funds||Outperform benchmark||Swaps, debt, exotics|
|Asset allocation||Risk management||Swaps|
|Active manager transition||Cost management||Swaps, exotics|
|aDebt refers to equity-linked debt products.|
Creation of Structured Product Solutions
One of the most important applications of derivative securities is in the creation of structured product solutions to the ...
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