University of Malta

Study-Unit Description
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TITLE Structured Investment Products

LEVEL 04 - Years 4, 5 in Modular UG or PG Cert Course


DEPARTMENT Banking and Finance

DESCRIPTION This study-unit will describe the main classes of structured investment products. The program will focus on how structured products can be used to reach capital protection, or achieve yield enhancement or participation in any asset class. Then attention will be concentrated on the pricing and risk management issues of structured products.

Week 1 Introduction
    • Reading pack
    • Wilmott, Chapters 2,9

• Historical background
• Time value for money Concept
• Equivalent Rate, Effective Rate & Continuously Compounded rate
• Future Value (FV), Present Value, rate of Discount and Discount Factor
• Zero-Coupon bond & Zero Coupon Yield
• American Vs European Options
• Exotic Options

Week 2 Overview Structured Products
    • Reading pack
    • Blumke, Chapter 2

• Buyers, Sellers and Reasons for Investing in Structured Products
• Reading a Payoff Diagram
• Reading a Payoff Formula
• Reading a Term-Sheet.

Week 3-4 Main Categories of Structured investment products
    • Reading pack
    • Blumke, Chapter 3

• Capital Guaranteed Products
• Yield Enhancement
• Participation

Week 5-6 Structured Products During their Lifetime
    • Distribution of Assignment
    • Reading pack
    • Blumke, Chapter 4
    • Hull, Chapters 15, 17

• Main Valuation and Risk Measures.
• Capital Guarantee
• Yield Enhancement
• Participation Products
• Other Participation Products

Week 7 More Exotic Options & Special Features
    • Reading pack
    • Wilmott, Chapters 14
    • Hull, Chapters 19-20
    • Blumke, Chapter 5

• Quanto Options
• Barrier Options
• Autocall and Callable Options
• Rolling Products and Products Without Fixed Maturity
• Conditional and Accumulating Coupons

Week 8 Functionality Options of Structured Products
    • Reading pack
    • Blumke, Chapter 6

• Physical or Cash Delivery with Equity-Based Products
• Clean Price and Dirty Price.
• Lending Values
• Issue Minimum/Maximum Size and Liquidity
• Funding Rates and Counterparty/Credit Risk.

Week 9-10 Foreign Exchange, Fixed Income and Commodity Products
    • Reading pack
    • Blumke, Chapter 7

• FX-Based Structures
• Fixed Income Structures
• Commodity Structures

Week 11 Recent Developments
    • Reading pack
    • Blumke, Chapter 8

• Customized Index Products
• Electronic Trading Platforms
• Actively Managed Certificates

Week 12 Classical Theory and Structured Products.
    • Reading pack
    • Blumke, Chapter 10

• Distribution of Returns Shapes
• Classical Portfolio Management Theories
• Classical Theory and Structured Products.

Week 13 Return Distributions of Structured Products.
    • Reading pack
    • Blumke, Chapter 12

• Procedure and Data
• Capital Guaranteed Products
• Yield Enhancement Products
• Participation Products
• Conclusion: Product Classification

Week 14 Structured Portfolio Construction
    • Reading pack
    • Blumke, Chapter 13

• Portfolio Construction Process
• Constructing a Structured Product Portfolio in Theory
• Preferred Return Distribution Process Versus Classic Portfolio Management
• Investor Portfolios
• Conclusion

Study-unit Aims:

The aim of this study-unit is to focus on how structured investment products can be used by investors to access a large variety of underlying and risk/return profiles. Also, it will seek to assist the student in understanding what pricing and risk issues need to be considered when investing and trading structured products. This is achieved through the use of a combination of theoretical lessons and tutorials. Class work will involve lectures and pricing workshops.

Learning Outcomes:

1. Knowledge & Understanding:

By the end of the study-unit the student will be able to:
- have a broad overview of the rationale underlying the use of structured products;
- break down structured products into their base building blocks and price them in the current financial markets.

2. Skills:

By the end of the study-unit the student will be able to:
- construct a structured investment product and be able to price structured investment products in the current financial markets;
- assess the risk profile of these products.

Main Text/s and any supplementary readings:

- Andreas Blumke, How to Invest in Structured Products, a Guide for Investors and Asset Managers, Wiley, 2009.
- Paul Wilmott, Derivatives, The Theory and Practice of Financial Engineering, Wiley, 2000.
- John Hull, Options, Futures and Other Derivatives, Sixth Edition, Prentice-Hall, 2006.

A Lecturer's reading pack is also provided

ADDITIONAL NOTES Pre-requisite Study-unit: BKF4051

STUDY-UNIT TYPE Lecture and Tutorial

Assessment Component/s Resit Availability Weighting
Case Study (take home) No 20%
Examination (2 Hours) Yes 80%

LECTURER/S Mark Azzopardi

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It should be noted that all the information in the study-unit description above applies to the academic year 2017/8, if study-unit is available during this academic year, and may be subject to change in subsequent years.
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