Synthetic Securities


 
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Synthetic Securities
Oscar Pyngrope, Student (MBA), India, Premium Member
WHAT IS A SYNTHETIC SECURITY?
A synthetic security is a cash flow stream created from a combination or decomposition of the cash flow associated with a set of instruments that exactly replicates the cash flow streams associated with the real instrument. Through synthetic securities we can combine securities to mimic the properties of another security.
The process of packaging together underlying assets to create a synthetic security is called: securitization. A synthetic security is also referred to as: a synthetic position.
The components making up synthetic products can be assets or derivatives, but synthetic products themselves are inherently (always) derivatives. After all, they are always derived from the underlying assets (or derivatives).

HOW A SYNTHETIC SECURITY WORKS
We can duplicate the cash flow streams of instrument C by combining the cash flow streams of instruments A and B. If they add up ...Sign up
 

 
Why Synthetic Securities?
Jaap de Jonge, CEO, Netherlands, Editor
Reasons for buying a synthetic security include:
  1. SCARCITY: Being able to buy a security that does not exist other than as a synthetic...Sign up
 

 



















 


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