Demand for exotic underlyings such as hybrids of equity and funds, or exposure to emerging markets has drawn attention away from exotic pay-offs, according to Stephane Junod, head of the exotics structuring group at Deutsche Bank. The increasing focus on the structured products business by regulators in Europe has also put pressure on structuring innovation, as has been seen in Italy (DW, 4/25).
Recent pay-off formulas have been variations of old structures such as 'best-of', individual caps and ladders, according to Junod. In comparison, the scope of underlyings is expanding rapidly, and often demand is for traditionally illiquid underlyings, such as hedge funds and markets in India or China. The challenge for the structurer right now, noted Junod, is to match the appropriate pay-off to the underlying.
