Journal of Banking & Finance Vol. 33 No. 5 2009
The price-setting behavior of banks: An analysis of open-end leverage certificates on the German market
Abstract
This 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.
- DOI
- 10.1016/j.jbankfin.2008.09.019
- Volume
- 33
- Issue
- 5
- Pages
- 874-882
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib