From the issuer's point of view, structuring means that a number of existing financial products are combined to achieve the client's desired return function.
In exchange for the potential for a higher return (if the equity value would increase and the bond could be converted at a profit), investors would accept lower interest rates in the meantime.
[citation needed] Interest in these investments has been growing in recent years, and high-net-worth investors now use structured products as way of portfolio diversification.
Structured products are also available at the mass retail level—particularly in Europe, where national post offices, and even supermarkets, sell investments on these to their customers; these are referred to as PRIIPs.
A Quantitative framework in order to assess the risk-reward profile of structured products based on probability theory was developed by Marcello Minenna.
Securitized products such as Mortgage-backed securities allow investors to get paid from principal and interest cash flows which are usually collected from underlying debt and collateral and then paid back based upon the capital structure of the security, whether it be in relation to mortgages and real estate, or any other debt products that can be financed in this way.
The securitization process follows a waterfall model[12] which is divided into tranches and pays investors based upon the level of riskiness their investments hold.
[13] In order to originate and structure these products, the securitization process employs a special purpose vehicle[14] technique so that a separate company is created in which the securitized debt in formed as a limited liability venture, so it can carry large mortgages with varying levels of riskiness without having to deploy this capital on their own balance sheets.
In recent times however, in order to control extremely high levels of inflation, the fed has raised interest rates leading to the price of the bond market and structured notes falling significantly, as well as the formulation of a much higher rate of yield to investors like asset managers, hedge funds, and investment banks who buy these products.