Structured products interview questions — decompose it on the whiteboard

Interviewers rarely ask you to recite the definition of a reverse convertible. They describe a payoff — sometimes one they invented on the spot — and watch how you take it apart. The good news is that the method is always the same, and it is learnable in an afternoon.

The method: draw the payoff, then find the kinks

Draw the payoff at maturity as a function of spot. Then look for the kinks — the points where the slope changes. Every kink is an option strike. The slope between two kinks tells you how many units of the underlying you are holding in that region, and a flat region means you have sold away all participation there.

Work left to right and name each piece: a zero-coupon bond for the guaranteed part, long or short calls and puts at each kink, and a plain holding of the underlying wherever the slope is 1. When the pieces reproduce the drawing, you are done — and you can now price the product, because you can price every leg.

The three questions that follow, every time

• Is the client long or short volatility? Almost always short. Retail structured products are, overwhelmingly, ways of selling optionality to fund an attractive headline coupon or a discount to spot.
• Where is the issuer's margin? Not in a fee line — it is in the price of the embedded options. The bank buys the optionality from the client below its fair value. Say this plainly; it shows you understand the commercial reality, not just the maths.
• What is the worst case, and does the client understand it? Capped upside with uncapped downside is the classic asymmetry. Being able to state it crisply is what a structuring desk hires for.

A comparison trick worth knowing

A frequent format is "which of these two is more expensive, and why?" — where the second product is the first one with an extra feature bolted on. Do not try to price either. Ask instead: does the extra feature give the holder more, or take something away?

Anything that caps a payoff, adds a barrier that can knock you out, or removes participation above a level is the client selling something extra. Selling something makes the package cheaper. That single line of reasoning answers a whole family of questions without a formula, and it is exactly the reasoning a trader uses.

Vocabulary to have ready

You should be able to say in one sentence each what a capital-protected note, a discount certificate, a bonus certificate, a reverse convertible and an autocall are — and, for each, which option the client has effectively sold. If you can also name the barrier type involved, you are ahead of most candidates.