The Pricing of Structured Products in Germany
The Journal of Derivatives, Vol. 11, pp. 55-69, Fall 2003
Posted: 18 Aug 2008 Last revised: 25 Aug 2008
Date Written: August, 18 2008
Abstract
This article examines the issuer pricing of structured products during exchange trading in November 2001, comparing daily closing quotes of roughly 170 reverse convertibles and 740 discount certificates to values based on duplication strategies using call options traded on the Eurex (European Exchange). It investigates the average price differences depending on product type, issuer, and underlying, with special attention given to the possible influence of order flow. That is, do price quotes depend on the expected volume of purchases and sales? The results reveal significant differences between the pricing of structured products and duplication cost, which seem mostly in favor of the issuing institution.
Keywords: Reverse Convertible, Discount Certificate, Implied Volatility, Market Microstructure
JEL Classification: G13, G24
Suggested Citation: Suggested Citation
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