Macquarie University

Structured and Exotic Products - ECFS882

Structured products are investment vehicles often designed for investors to achieve a higher return, or exposure to a particular market, or for companies to raise funds more cheaply. To achieve this, the end user will typically take on a higher level of risk and be expressing a particular market view. Such products are engineered by packaging standard instruments with derivatives, possibly with exotic features, to reflect the risk tolerance and market outlook of the user. This unit introduces the most important types of exotic derivatives, including digital, average rate and barrier options; path-dependent options such as cliquet options; and multi-asset options such as basket options . In each case, we see how these derivatives can be used as building blocks to construct structured products which enable market participants to achieve risk-return profiles beyond those provided by standard financial instruments. As well as construction, we discuss risks and difficulties experienced in the trading, pricing and management of such products.