Bloomberg issued a news release today discussing the topic of a structured products bubble in Wall Street. According Christopher Whalen, managing director of Institutional Risk Analytics, the sale of structured products allows the selling firms to make bets on interest rates. Furthermore, they are illiquid products for which firms are not obligated to make markets and hence provide liquidity when these products might need them most.
This is consistent with our view that structured products are complex instruments that mask their hidden costs and risks. We encourage investors to carefully understand their payoff structures, associated fees, liquidity risks, interest rate risks and credit risks before committing to purchasing them.
SLCG has a dedicated website providing papers, notes and calculation tools on a variety of structured products. Specifically, related papers include: