Untold Secrets of Structured Product Investing

Just as you don’t need to know how to mix a martini to enjoy one, you don’t need to know any complex statistical formulas to get a great deal from this book.

Untold Secrets of Structured Product Investing

Like Terry Pratchett, I would not want to drink a suspicious cocktail, the ingredients, and level of alcohol of which were unknown to me. Likewise, I wouldn’t want to invest my hard-earned money in some complicated investment product while understanding neither the purpose nor the risk profile of the investment. This is why I decided to write a guide that takes a deep dive into the world of structured product investing—to explain their purpose, construction rules, and risk and performance profiles. This is the book where you will find many of the untold secrets of structured products—secrets usually known only to the expert traders who construct these products. Just as you don’t need to know how to mix a martini to enjoy one, you don’t need to know any complex statistical formulas to get a great deal from this book. You should, of course, know that the likelihood for positive or negative returns is often described by probability distributions. For instance, you may want to keep in mind the plot of the bell-shaped Gaussian distribution. Payoff charts and illustrations of the probability distribution of returns are powerful concepts that we will use in this book to illustrate the performance and risk characteristics of structured products. Where I have introduced concepts, the first mention is in bold type, and you will find a full definition in the glossary.

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In this book, I will explain the use cases of structured products, the way they are built (“product recipes”), and their risk and return profile in greater detail than what is available in material published by product providers or even in most textbooks.

At the same time, my goal is to make this book an entertaining read as well, by using the analogy of bar cocktails for structured products —a metaphor that works quite well in terms of explaining construction (“mixing”) rules, use cases, and risk profiles. This approach has also allowed me to add some anecdotes, which I hope you will enjoy, from the world of cocktails and the world of investing.

I have organised the book into three main parts that build on each other and increase in terms of technical complexity.

Part I: The Raison d’Être of Structured Products explains the basic definition of structured products, their use cases, and the four main product categories.
Part II: The Alchemy of Structured Products goes a bit more into technical details. Here, I will introduce technical concepts that help us to analyse the construction rules as well as the risk and performance profiles of structured products.
Part III: Deconstructing Structured Products is the part of the book in which we will analyse construction rules and risk analysis for all commonly used structured products across the four standard product categories.

It is my genuine hope that you will find great value, and a bit of fun, herein.

About the Author

Mathematician Guido Giese finds that analogies are some of the best tools to explain topics as complex as financial derivatives. In Untold Secrets of Structured Product Investing, Guido compares financial markets to mixology, revealing how structured products are analogous to cocktails, with special ingredients and outcomes that range from a slight euphoria (most enjoyable) to a regrettable hangover (which this book is meant to help investors avoid).

Guido studied physics and mathematics at Heidelberg University and earned a PhD in applied mathematics from the Swiss Federal Institute of Technology. He has more than twenty years of experience in the financial sector as a quantitative researcher and has published numerous research articles in financial literature. Guido lives in London with his wife and children. In his spare time, he likes to play tennis.

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