Chapter 28 CAIA Flashcards - Equity Linked Structured Products
Wrapper
A wrapper is the legal vehicle or construct within which an investment product is offered.
OVER-THE-COUNTER (OTC) CONTRACTS
OVER-THE-COUNTER (OTC) CONTRACTS: Private contracts negotiated between the investor and the issuing institution. Like credit default swaps (CDSs), they are usually formed under an International Swaps and Derivatives Association (ISDA) framework (as discussed in Chapter 26).
MEDIUM-TERM NOTES/CERTIFICATES/WARRANTS
MEDIUM-TERM NOTES/CERTIFICATES/WARRANTS: Low-cost securities that can be public or private. Many such securities are traded on major stock exchanges.
LIFE INSURANCE POLICIES:
Life insurance policies embedded within structured products. The products are subject to investment restrictions but may offer tax advantages.
ISLAMIC WRAPPERS
Legal envelopes that are shari’a compliant. Common interpretations of this compliance include the avoidance of interest and speculation (or excessive interest and speculation), and the avoidance of investing in prohibited underlying activities.
A path-dependent option
A path-dependent option is any option with a payoff that depends on the value of the underlying asset at points prior to the option’s expiration date.
A barrier option
A barrier option is an option in which a change in the payoff is triggered if the underlying asset reaches a prespecified level during a prespecified time period.
Quanto Option
A quanto option is an option with a payoff based in one currency using the numerical value of the underlying asset expressed in a different currency.
Dynamic hedging
Dynamic hedging is when the portfolio weights must be altered through time to maintain a desired risk exposure, such as zero risk.
A static hedge
A static hedge is when the positions in the portfolio do not need to be adjusted through time in response to stochastic price changes to maintain a hedge.
