Structured derivative instruments as investment vehicles

Derivative instruments have become a ubiquitous part of the financial landscape over the last decade.

From being instruments used primarily for speculative or hedging purposes, they have now become important for investors as tools for optimizing use of capital within the constraints of their investment mandates.

The rapid growth of the OTC derivatives market interest rate, currency, equities and, more recently, credit has meant that investors can now assume risks with which they are comfortable, but which instruments in the cash market cannot provide.

It is appropriate to begin with the investors, since their objectives, and the constraints they face in meeting those objectives, are the starting point in structuring a suitable derivative instrument for the investors. They fall in three broad categories portfolio managers, hedge funds...

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