Structured Equity Derivatives Essay Example | Topics and Well Written Essays - 4000 words

structured Equity Derivatives - Essay ExampleLeverage on fairness returns over prede marginined ranges. Limit or reduce downside exposure to the underlying equities. Even out, compensate or reduce transaction costs as part of multiple option sophisticated investing strategies. The term righteousness derivative essentially means a class of financial instruments whose value is at to the lowest degree partly derived from one or more underlying equity securities. Market participants trade social organisationd equity derivatives in order to transfer or transform certain risks associated the underlying. Options be by far the intimately common equity derivative however there atomic number 18 many other types of equity derivatives that are actively traded. Ramaswami et al(2001) have lucidly described the image of structured equity linked derivatives through the concept of Equity Linked Notes(ELNs).They state as follows, An Equity-Linked Note (ELN) is an instrument that provides inves tors fixed income the likes of principal security measure together with equity market tiptop exposure. An ELN is structured by combining the economics of a dour call option on equity with a long discount bond position. The investment structure generally provides 100% principal protection. The coupon or final payment at maturity is obstinate by the appreciation of the underlying equity. The instrument is appropriate for conservative equity investors or fixed income investors who disposition equity exposure with controlled risk. The figure below explains the profits at the expiration of a full protected ELN .Current Industry Scenario Since their launch on the London Stock Exchange in 2005, Listed structured Products have become popular and flexible investment tools for UK wealth managers and brokers. In there simplest form, they offer ETF like access to underlying that may be otherwise difficult or expensive to trade, such as commodities, emerging markets or property indices. T he more structured products, such as Accelerators, provide enhanced upside participation with no worse than market risk. In addition they can reduce other risks, such as eliminating currency risk for non UK investments, or provide an element of capital protection in encase of market falls. Another range of products are designed for Income seeking investors. These can offer high one-year (or semi-annual or quarterly) coupon payments in return for giving away upside market participation. All Listed Structured Products enjoy the benefits of being traded directly on the London Stock Exchange. These include TransparencyLive, two-way prices are maintained throughout the trading dayEase of tradeProducts trade and settle via CREST as with UK equityLiquidity Trades of 5m+ can be executed at prevailing market pricesFlexibility arcminute trade size of 1,000 makes products highly accessibleKey Terminology1TrackersTracks an underlying asset (commodity, Halifax planetary house price index, eq uity indices etc) Cost efficient means to trade an asset Diversify exposure crossways an index Stamp duty un strikeionate Typically long-dated or indeed undated with an suspicious lifespanReverse TrackersAn inverse relationship with the underlying asset Profit from downwards price movements in the underlying Stamp duty freeCapital ProtectedExposure to underlying asset at fixed percentage Capital invested is protected at specified level Stamp duty freeYield EnhancementTrack underlying instrument without leveraged downside Can incorporate many different features which affect