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Volatility is not just risk; it is the raw material options are priced from. Understanding it explains why structures cost what they cost.
Every structured product is built from options, and the price of an option rises with expected volatility. When markets are fearful and volatility is high, the options inside structures become more expensive to buy and more valuable to sell.
That is why the same payoff can offer better terms in a high-volatility environment: the issuer can sell volatility to fund richer features.
Some structures link the return directly to realised volatility, paying more when dispersion is high. They suit a view that turbulence, rather than direction, will dominate.
On our 3D payoff surface, volatility is the second axis. Watch how the surface softens and rounds as volatility rises, because dispersion blunts the sharp edges of a payoff.
Volatility is the raw material every structure is priced from.
This article is educational and does not constitute investment, tax or legal advice, nor a solicitation to invest. Any figures are indicative illustrations of mechanics, not forecasts. Refer to official term sheets and consult a qualified professional before investing.