Financial Options and the Scandal of Banca Popolare Italiana (BPI): An Overnight Business Case

Abstract

Written immediately after the financial scandal involving the entire Governance of Banca Popolare Italiana (BPI) in 2006, this paper tries to answer the most frequently asked question by small, individual investors: are financial options a fair bet for anyone? Restated in a more general form, this question better reflects the deepest concerns raised by the BPI scandal: is it even conceivable that options' value can be manipulated by bankers in favor of few institutional investors? What is the asymmetry in the option pricing algorithm that would allow an unequal distribution of risk, and consequently of pay-offs, among investors? Are financial options a transparent and credible investment choice for a small investor?

Keywords: governance, bank, financial, options, scandal, BPI

JEL Classification: G21, G14, M41