We review the current practice in the design of investment products. It turns out that the quality of products can be substantially improved with a relatively small quantitative effort. Recognizing financial products as the ultimate output of our industry this approach puts demands on support...

We present a theory of product design covering a large class of investors. Bayesian laws of information processing provide the logical foundation and lead to a simple structuring tool -- the payoff elasticity equation. Structuring of investment derivatives is summarized as a manufacturing process.

The recent crisis and the following flight to simplicity put most derivative businesses around the world under considerable pressure. We argue that the traditional modeling techniques must be extended to include product design. We propose a quantitative framework for creating products which meet...