Trends In Linear Payout Structures ­ Part I

Recently, there has been an increase in straight payout structures being priced and traded in the interest rate derivatives market. Unusual market conditions and a general aversion to conventional exotics has helped these trades evolve relatively quickly. Although they are very complex trades to value these simple exotics offer very clear and straight forward payouts and allow speculation on or hedging of very specific types of risk. Often the more simple the payout, the more complex the initial pricing and modeling can be.