Question: Question 2 Structured notes linked to either hedge funds or mutual funds are popular with investors but raise several unique issues for the bank

Question 2 Structured notes linked to either hedge funds or mutual funds are popular with investors but raise several unique issues for the bank structuring them when compared to structuring products on traditional asset classes such as equities or commodities. a. Discuss the key issues faced when pricing options on funds with particular emphasis on the assumptions underlying the Black-Scholes model which are violated when the underlying asset is a hedge fund or mutual fund. (40 marks) b. Outline three solutions that the structured products industry has used to overcome the issues you have discussed above to create capital protected notes. (40 marks) c. What are the advantages & disadvantages of each of the three approaches (20 marks)

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