The hedging process is one of the most important aspects of creating structured products.

One of the key differences between structured products and traditional investments is that they need an investment bank to create and hedge the product by trading component parts in a way that will provide the contracted payoff to the investor.  The bank takes on the risk that the hedging process may end up being more expensive than it anticipated or that unexpected trading losses occur. As compensation the investment bank will charge a premium over what it believes will be the likely tota

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