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Understanding the Factors Driving the Demand of Structured Investment Products

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  • Massimo Guidolin
  • Giacomo Leonetti
  • Manuela Pedio

Abstract

Structured products have gained increasing popularity among retail investors over the last decade, both in Europe and in the United States. However, based on data on the ex post realized gains of retail clients investing in certificates, the literature has concluded that the high demand of these products may be hard to rationalize within a portfolio optimization framework. In this paper, we investigate whether a rational, perfectly informed investor with constant relative risk aversion (CRRA) preferences who optimally allocates her wealth among risky and riskless assets can ex ante expect to benefit from adding structured products to her portfolio. We show that the utility gains from investment certificates vary dramatically across alternative structures, investment horizons, and levels of risk aversion. We also find that the optimal demand for investment certificates and their benefits depend heavily on the pricing models informing the portfolio assessment and the size of the risk premia associated with them.

Suggested Citation

  • Massimo Guidolin & Giacomo Leonetti & Manuela Pedio, 2025. "Understanding the Factors Driving the Demand of Structured Investment Products," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(9), pages 1154-1181, September.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:9:p:1154-1181
    DOI: 10.1002/fut.22612
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