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OTC Derivatives for Retail Investors

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  • Harry. M Kat

    (ICMA Centre, University of Reading)

Abstract

In this paper we report on a new class of derivative products which we refer to as equity-linked savings products. Equity-linked savings products require investors to pay periodic instalments in return for a predefined equity-linked payoff at maturity. We discuss the structuring, hedging, pricing and marketing of a variety of equity-linked savings products in detail, paying particular attention to the case of The Netherlands where equity-linked savings products are currently very popular with an estimated USD 2 billion issued over the last three years. Reverse engineering of a recent issue shows that the profit margins which product providers may be able to achieve on equity-linked savings products are extremely high.

Suggested Citation

  • Harry. M Kat, 2000. "OTC Derivatives for Retail Investors," ICMA Centre Discussion Papers in Finance icma-dp2000-11, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:icmadp:icma-dp2000-11
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    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2000-11.pdf
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    References listed on IDEAS

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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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