Trade of the month: European and American barriers compared
Tim Mortimer discusses the characteristics of the two main types of barrier found in structured products
Barriers in structured products are a very common and are an acceptable method of reducing risk, and can be added to virtually all products that are capital at risk. The basic principle is that the full risk - usually a 1:1 drop in the capital value if the underlying falls - only applies once the barrier condition has been breached.
The two fundamentally different types of barriers are usually called American or European: American barriers apply during the whole lifetime of a product and are
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