These are simple questions, i know what is a structured product and how you price it but i'm a bit confused regarding the process.
Let's say client buys a simple product for 1Y, guaranteed capital and 100% of the upside. So as a structurer you receive 100 from the client, you put 95 in the ZC, you will have 100 in 1 year. Then you give the 5 to the trading desk for the call but :
- Does the trader buy on the market the call the client will have, then he is in the same position than the client ? But in this case he can't hedge as a call seller and it's what he does from what I understood.
- Does he create a selling call position in his book and use the 5 to hedge himself ?
- Why then would it matter for the pricing desk to have the good price of the call on the market if he doesn't use it to buy a call and only needs to hedge as a seller ?