Tranched Value Securities

Abstract

Structured financial products and derivatives were one of the major financial innovations since 18th century, which improve market completeness by transforming risk-sharing mechanisms. Since then, thousands of derivative types were created, and its market has grown to over six-times greater than global GDP, but capital markets still exhibit efficiency only to a limited extent. This paper assesses the potential performance of Tranched Value Securities (patent pending) – a new type of financial instrument that transforms a single underlying to asymmetrically paying derivative, and has a potential to further improve capital markets by facilitating risk sharing, and satisfy a wide range of investment objectives.

Keywords: tranched value securities; value tranching; derivatives; securitization; risk transfer; financial instrument; structured products; securities; alternative investments; financial innovation

JEL Classification: G00, G10, G12, G13, G14, G19