Let’s take a principal protected Note as as example.
typically you’d buy a zero coupon bond and a call option to track index if your choice. As index increasing so does your payoff.
but how would you structure a PPN so that if index ‘x’ finishes anywhere between 0-30% over a 5 year period the holder gets 30%. If index finishes higher than 30 the holder participates in 100% of the upside.
I assume the upside is done again, by buying a simple call. but how is the finishing in between a range but getting a fixed return structured?
also how would the dealer make money off of selling a product like this?
one way I can think of is
long zero coupon bond
long call at strike 0%
long put at strike 30%
woukd that work and is there any other way?