How to Invest in Structured Products : A Guide for Investors and Asset Managers

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-09-15
  • Publisher: Wiley
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This book is essential in understanding, investing and risk managing the holy grail of investments - structured products. The book begins by introducing structured products by way of a basic guide so that readers will be able to understand a payoff graphic, read a termsheet or assess a payoff formula, before moving on to the key asset classes and their peculiarities. Readers will then move on to the more advanced subjects such as structured products construction and behaviour during their lifetime. It also explains how to avoid important pitfalls in products across all asset classes, pitfalls that have led to huge losses over recent years, including detailed coverage of counterparty risk, the fall of Lehman Brothers and other key aspects of the financial crisis related to structured products. The second part of the book presents an original approach to implementing structured products in a portfolio.Key features include: A comprehensive list of factors an investor needs to take into consideration before investing. This makes it a great help to any buyer of structured products; Unbiased advice on product investments across several asset classes: equities, fixed income, foreign exchange and commodities; Guidance on how to implement structured products in a portfolio context; A comprehensive questionnaire that will help investors to define their own investment preferences, allowing for a greater precision when facing investment decisions; An original approach determining the typical distribution of returns for major product types, essential for product classification and optimal portfolio implementation purposes; Written in a fresh, clear and understandable style, with many figures illustrating the products and very little mathematics.This book will enable you to better comprehend the use of structured products in everyday banking, quickly analyzing a product, assessing which of your clients it suits, and recognizing its major pitfalls. You will be able to see the added value versus the cost of a product and if the payoff is compatible with the market expectations.

Author Biography

ANDREAS BLÜMKE is Head of Structured Products at VP Bank. He obtained a degree in economics, option business management, from the HEC University of Lausanne in 1992. He became a Certified International Investment Analyst (CIIA) in 2000. Before starting a banking career, he was a commodity trader from 1992 to 1995, working for Continental France in Toulouse as a soft-seed trader, and later at Deustche Conti in Hamburg as edible oil trader. He began his banking activities at UBS AG in 1996 in Zürich, where he briefly traded bonds and bond futures, before he joined Cantrade Privatbank AG in 1997 to trade OTC options. Shortly after, he created and built the structured products desk. As the structured products business expanded successfully, he managed a team of up to 6 people, including an Advisory desk. Cantrade subsequently became Ehinger & Armand von Ernst AG, and was acquired by Julius Baer AG in 2006.

He is married with two children, and fluent in French, German and English. Structured products have been his passion for the last 12 years.

Table of Contents

Disclaimerp. x
Forewordp. xi
Acknowledgementsp. xiii
Goal of this bookp. xv
Who should be interestedp. xvii
Content summaryp. xviii
Individual Structured Productsp. 1
Introductionp. 3
Generalities About Structured Productsp. 7
A Definition by Analogyp. 7
Buyers, Sellers and Reasons for Investing in Structured Productsp. 9
Reading a Payoff Diagramp. 14
Reading a Payoff Formulap. 16
Reading a Term-Sheetp. 19
The Categories of Structured Productsp. 33
Capital Guaranteed Productsp. 34
Yield Enhancementp. 43
Participationp. 53
Behavior of Structured Products During their Lifetimep. 71
Main Valuation and Risk Measuresp. 71
Capital Guaranteep. 78
Yield Enhancementp. 88
Participation Productsp. 98
Other Participation Productsp. 108
Common Special Features of Structured Productsp. 117
Quanto Optionsp. 117
Barrier Optionsp. 121
Autocall and Callable Optionsp. 124
Rolling Products and Products Without Fixed Maturityp. 134
Conditional and Accumulating Couponsp. 136
Functionality Options of Structured Productsp. 139
Physical or Cash Delivery with Equity-Based Productsp. 139
Clean Price and Dirty Pricep. 140
Lending Valuesp. 140
Issue Minimum/Maximum Size and Liquidityp. 142
Funding Rates and Counterparty/Credit Riskp. 145
Foreign Exchange, Fixed Income and Commodity Productsp. 151
FX-Based Structuresp. 151
Fixed Income Structuresp. 168
Commodity Structuresp. 187
Recent Developmentsp. 207
Customized Index Productsp. 207
Actively Managed Certificatesp. 210
Electronic Trading Platformsp. 213
Structured Products in a Portfolio Contextp. 217
Introduction to Part IIp. 219
Classical Theory and Structured Productsp. 223
Distribution of Returns Shapesp. 223
Classical Portfolio Management Theoriesp. 227
Classical Theory and Structured Productsp. 230
Conclusionp. 233
Structured Solution Proposalp. 235
Preferred Distribution of Return Investment Processp. 235
Distribution Classes: The Return Distribution Cubep. 238
An Investor's Utility (Value) Curvep. 240
Questionnairep. 246
Return Distributions of Structured Productsp. 259
Procedure and Datap. 259
Capital Guaranteed Productsp. 264
Yield Enhancement Productsp. 274
Participation Productsp. 289
Conclusion: Product Classificationp. 298
Structured Portfolio Constructionp. 301
Portfolio Construction Processp. 301
Constructing a Structured Product Portfolio in Theoryp. 302
Preferred Return Distribution Process Versus Classic Portfolio Managementp. 305
Investor Portfoliosp. 311
Final Wordsp. 317
Glossary of Termsp. 321
Distribution of Returns: An Intuitive Explanationp. 333
Questionnairep. 337
List of Figuresp. 341
List of Tablesp. 345
Index Informationp. 349
Issuer and Product-Related Websitesp. 351
Bibliographyp. 353
Indexp. 355
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