# Structured note

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{{Short description|Type of derivative in finance}}
A '''structured note''' is an [over the counter](/source/Over-the-counter_(finance)) [derivative](/source/Derivative_(finance)) with hybrid [security](/source/Security_(finance)) features which combine payoffs from multiple ordinary securities, typically a [stock](/source/stock) or [bond](/source/Bond_(finance)) plus a [derivative](/source/Derivative_(finance)). 
When the product [depends on a credit payoff](/source/credit_risk), it is called a [credit-linked note](/source/credit-linked_note).
Since no such security exists outside of the sponsor creating this hybrid, the [creditworthiness](/source/Credit_risk) of this structured note depends on the strength of the sponsor.

Two typical [use case](/source/use_case)s:
*A simple example of a structured note would be a five-year bond tied together with an [option](/source/Option_(finance)) contract. The addition of the option contract changes the security's risk/return profile to make it more tailored to an investor's comfort zone. This makes it possible to invest in an asset class that would otherwise be considered too risky.<ref>{{citation |title=Financial derivatives |page=245 |author=Robert W. Kolb, James A. Overdahl |year=2003 |url=https://books.google.com/books?id=uNQ5u_gWh5wC&pg=PA245}}</ref>

*From the investor's point of view, a structured note might look like this: I agree to a three-year contract with a bank. I give the bank $100. The money will be indexed to the [S&P 500](/source/S%26P_500). In three years, if the S&P has gone up, the bank will pay me $100 ''plus the gain in the S&P''. However, if the S&P has gone down, the bank will pay me back the entire $100 – an advantage known as [downside protection](/source/capital_guarantee). (In reality the downside protection is usually ["contingent"](/source/contingent_claim), i.e. it only applies up to a certain threshold amount. For example, with a threshold of 40%, if the S&P has gone down by more than 40%, the bank will no longer pay me back $100, but instead it will pay me the proportional value indexed to the S&P – e.g. $55 if the S&P has gone down by 45%.<ref>UBS Financial Services, ''Structured Products: January products guide.'' (2010)</ref>)

==See also==
* [Structured product](/source/Structured_product)
* [Credit-linked note](/source/Credit-linked_note)
* [Equity-linked note](/source/Equity-linked_note) 
* [Floating rate note](/source/Floating_rate_note)
* [Inverse floating rate note](/source/Inverse_floating_rate_note)
* [Market-linked note](/source/Market-linked_note)

==References==
{{reflist}}

Category:Derivatives (finance)
Category:Structured finance

[es:Notas estructuradas](/source/es%3ANotas_estructuradas)

{{Econ-stub}}

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