Structured Products and Stripping

It is often the case that financial instruments are not traded in the form described in the previous chapters, but that combinations of these instruments are collected and traded as new financial instruments. Such constructions are called structured products or structured instruments. In order to understand the behavior, the valuation and the risk of such structured products, they must first be decomposed into their elementary instruments in a process called stripping. The following elementary instruments play a particularly important role in this process