How a structured product is constructed

A structured product is basically a combination of a zero-coupon bond and an option structure, as illustrated in the graph below.

A structured product involves exchanging one form of investment for another. Typically, investors in structured products forgo the potential interest from a cash deposit in favour of e.g. an equity-linked investment with a capital guarantee.

Alternative 1: The underlying index have been falling during the investment period
Alternative 2: The underlying index have increased during the investment period