The price-setting behavior of banks: An analysis of open-end leverage certificates on the German market
AbstractThis paper presents the first analysis of open-end leverage certificates on the German market. The major innovations of these certificates are twofold. First, issuers announce a price-setting formula according to which they are willing to buy and sell the certificates over time. Second, the product's lifetime is potentially endless. Our main findings are that the price-setting formula is (i) designed to strongly favor the issuer and (ii) is consistent with the main outcome of the 'life cycle hypothesis' for structured financial products [Stoimenov, P.A., Wilkens, S., 2005. Are structured products 'fairly' priced? An analysis of the German market for equity-linked instruments. Journal of Banking and Finance 29, 2971-2993]. (iii) This holds for different product features and also in the presence of issuers' credit risk and jump risk in the underlying.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 33 (2009)
Issue (Month): 5 (May)
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Web page: http://www.elsevier.com/locate/jbf
Structured products Certificates Hedging German market Pricing;
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