Structured finance denotes
the art (and science) of designing financial products to satisfy the different needs of investors
and borrowers as closely as possible. In this sense, it represents a specific technique and
operation of the financial intermediation business. In fact, the traditional banking activity,
i.e. designing loans to provide firms with funds and deposits to attract funds from retail
investors, along with managing the risk of a gap in their payoffs, was nothing but the most
primitive example of a structuring process. Nowadays, the structured finance term has been
provided with a more specialized meaning, i.e. that of a set of products involving the presence
of derivatives, but most of the basic concepts of the old-fashioned intermediation business
carry over to this new paradigm. Building on this basic picture, we will make it more and
more involved, in this chapter and throughout the book, adding to these basic demands and
needs the questions that professionals in the modern structured finance business address to
make the products more and more attractive to investors and borrower