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PPN
A structured product, generally made up of a debt security maturing in several years, that guarantees repayment of the principal at maturity and gives the holder the right to receive a specific portion of the return on an underlying, most often at maturity, but sometimes at specific times during the term of the security.
To fulfill its obligations, the note issuer may use two structures: a zero-coupon structure in which the money collected is invested in risk-free securities (zero-coupon government bonds) to be able to honour the principal repayment guarantee, and in call options on the underlying to generate a future return, and a Constant Proportion Portfolio Insurance (CPPI) structure in which the amount of money is invested in varying proportions of risk-free securities and the underlying depending on market dynamics.
Translations
Synonyms and variations
- Capital protected note
- Constant Proportion Portfolio Insurance
- CPN
- CPPI
- Principal protected note