Products
Structured Products
Bonds, deposits and loans with embedded derivatives, and how to break them down into their components.
Introductory4 pagesPractitioner6 pages
1Structured Product Concepts
Quiz for this chapterQuiz: Structured Product Concepts2Structured Notes
- IntroductoryExchangeable Bonds (EB)On many exchangeable bonds, if the bond knocks in and is redeemed in shares, the investor receives less than the principal by the amount the share price has fallen.
- IntroductoryEquity Index-Linked NotesA so-called principal-protected note splits into a zero-coupon bond and a long call on the index, and a rise in the index adds a proportional amount to the face value.
- PractitionerCallable Bonds and Early Redemption FeaturesOnce a bond is called, the investor stops receiving the remaining coupons, so the total interest received is less than if the bond had not been called.
- PractitionerConvertible Bonds (CB)The investor converts above the conversion price and takes the face value below it, so at maturity the CB is worth the higher of the value of the converted shares and the face value.
- PractitionerCredit-Linked Notes (CLN)In an example with a face value of 1 billion yen, the interest is 1.5% a year, the sum of 0.5% a year on the collateral government bonds and a 1% a year premium.
- PractitionerPRDC NotesThe issuer of a PRDC note receives the principal from investors in yen, pays investors a coupon set by the exchange rate, and enters into the same kind of payments with the swap counterparty.
- PractitionerDigital Coupon NotesThe coupon is either a fixed amount or zero (or a lower rate), depending on whether the level on the determination date is at or above the reference price.
3Structured Deposits and Loans
- IntroductoryStructured DepositsWhen the bank holds the right to extend the maturity, the depositor may keep the money deposited at a low fixed rate even after market rates rise.
- PractitionerStructured LoansExamples of structured lending include credit-linked loans, reverse floater loans and CMS loans.