The value of volatility

Market view by Robert Benson


One of the key factors in the pricing of derivative-based structured products is the cost of the embedded financial options. When option prices are high, the cost of simpler capital-protected structures tends to rise, and conversely the cost of capital-at-risk structures such as reverse convertible products tends to fall. Therefore, as option prices rise and fall, different types of products become more or less popular as their terms become more or less attractive to investors.

The cost of the

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