Abstract

http://ssrn.com/abstract=1101564
 
 

Citations



 


 



Endless Leverage Certificates


Silvia Rossetto


University of Toulouse 1 - Toulouse School of Economics (TSE)

Jos Van Bommel


Universite du Luxembourg - School of Finance

January 2008


Abstract:     
An Endless Leverage Certificate is a novel structured product that has become very popular among European retail investors. ELC-holders have the right to claim the difference between the value of underlying and a contractual financing level at any time during the unlimited life of the contract. Because the financing level increases at a predetermined rate, the contract can be interpreted as a plain vanilla levered position. ELCs have a contractual stoploss barrier, so that issuers can semi-statically hedge their positions by buying (or selling) the underlying. If they do, they are exposed to gap risk, the risk that the underlying precipitates through the barrier and the financing level. This may happen overnight, or due to large jumps. For a large sample of stock ELCs, we find that ELCs are overpriced by less than 1%, and that many ELC-investors exercise too late. We also find that average bid ask spreads are much smaller than on other derivatives. An intraday event study on stoploss terminations shows a pronounced increase in trading activity following stoploss events but a negligible price impact.

Keywords: Financial Innovation, Financial Derivatives, Structured Products

JEL Classification: G12, G13, G14

working papers series


Not Available For Download

Date posted: March 13, 2008  

Suggested Citation

Rossetto, Silvia and van Bommel, Jos, Endless Leverage Certificates (January 2008). Available at SSRN: http://ssrn.com/abstract=1101564 or http://dx.doi.org/10.2139/ssrn.1101564

Contact Information

Silvia Rossetto
University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
Jos Van Bommel (Contact Author)
Universite du Luxembourg - School of Finance ( email )
4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg
Feedback to SSRN


Paper statistics
Abstract Views: 375

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.265 seconds