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Endless Leverage Certificates

Posted: 13 Mar 2008  

Silvia Rossetto

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

Jos van Bommel

Luxembourg School of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: January 2008


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

Suggested Citation

Rossetto, Silvia and van Bommel, Jos, Endless Leverage Certificates (January 2008). Available at SSRN: or

Silvia Rossetto

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

Place Anatole-France
Toulouse Cedex, F-31042

Jos Van Bommel (Contact Author)

Luxembourg School of Finance ( email )

4 Rue Albert Borschette
Luxembourg, L-1246

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