Ribbon Finance: S(tr)addle Up for a Ride into Structured Products

Futures, forwards, options, swaps. No this isn’t the start of a new rap song by yours truly but is instead a few common examples of derivatives in financial markets. If you’re confused, you’re not alone. The complex world of derivatives is often the preserve of the financial elite which when used appropriately can offer investors a risk/reward pay-off which far exceeds simply buying and holding an asset. What if there was a way for investors to access the magical world of derivatives without needing to understand a call credit spread from a zero-coupon swap?

Welcome to Structured Products. Structured products are pre-packaged hybrid investments that use a combination of securities (usually a bond and an option) to give an investment pay-off which is attractive and differentiated to what would be available otherwise e.g. through simply buying and holding an asset. Through this article I’m going to provide the background and context to this asset class before doing a deep dive on Ribbon Finance.

First conceived in the early 1990’s as a way for retail investors to gain access to derivatives, structured products are now a global industry estimated to be worth more than $7 trillion. As an investment class, they have a somewhat tarnished reputation amongst the traditional financial markets with critics pointing to Lehman’s collapse in the global financial crisis as well as a number of banks being fined for mis-selling them over the last 20 years. DeFi offers the opportunity to improve on a number of existing inadequacies within the structured products market and demonstrate how when used correctly, structured products can be a core component of both retail and institutional capital allocator portfolios.

Intro to Structured Products

Structured products fall broadly into two categories:

• Structured deposit (savings)
• Structured investment (capital at risk)