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Our experts frequently write blog posts about the findings of the research we are conducting.

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Displaying 11-20 out of 74 results for "Structured Products".

Monte Carlo Simulation, Explained

Valuing products with exotic derivatives can be difficult since these products typically have complex payoff formulas. One of the most flexible methods for valuing such products is called Monte Carlo simulation. At SLCG, we use Monte Carlo simulation in a lot of our work, so we thought it would be helpful to explain a bit about it and show how it can be used to estimate the future returns of an asset.

The basic idea behind Monte Carlo simulation is to determine the statistical properties...

SLCG Research: Structured Product Indexes

Most research on structured products focuses on what is known as initial date mispricing -- the difference between what a product costs and how much it is worth, as of the issue date. If you look at any of our structured product reports (let's take this reverse convertible, for example), you can see that the product was issued at a price of $1,000, but that the present value of its resulting cashflows only comes out to $960.40. The difference, $39.60 or 3.96%, represents an expected loss to...

Fidelity to Launch Mutual Fund Based on Hedge Fund Strategy

We see it again and again: complex investment strategies packaged into traditionally conservative investments. We have seen corporate debt linked to exotic derivatives positions (structured products), exchange-traded products linked tocomplex futures positions (commodities and volatility ETPs), variable annuities linked to options strategies (structured product based variable annuities), and even certificates of deposit with complex payoff structures (structured CDs). Now, we are seeing more...

SLCG Research: Structured Product Based Variable Annuities

In 2010, AXA Equitable began issuing a new kind of variable annuity that, in addition to traditional mutual fund-like subaccounts, also included an option for a structured product-like crediting formula linked to an underlying index such as the S&P 500. Our firm had done a lot of work on both structured products and variable annuities, so in late 2011 we started analyzing the structured product embedded in AXA's product, eventually writing a short research paper on the subject which we...

Structured CD with an Exotic Embedded Option

In the past few months, we have constructed a database of thousands of structured certificates of deposit (CDs). We have analyzed and evaluated hundreds of these CDs and have compiled these results into a recently completed study . Our results indicate that structured CDs are usually issued at significant discounts to face-value (comparable to structured products), offer little if any market exposure and are often less valuable than contemporaneously issued fixed rate CDs.

We've recently come...

SLCG Research: Structured Certificates of Deposit

Lately, we've been fascinated by structured certificates of deposit (CDs), also known as 'market-linked CDs', 'equity-linked CDs', 'market contingent CDs', etc. Structured CDs are bank deposits that have interest payments linked to market indexes, individual stocks, commodities, or any other underlying asset. Unlike structured products, which have public SEC disclosure documents, structured CDs are not well studied and even the size of the market is not perfectly clear. We covered the basics...

Similar Structured Product Premia in US and Europe

One point we've made again and again in our research is that structured products -- debt securities with market-contingent payoffs -- tend to be priced at a premium to face value. We have documented premia in reverse convertibles, autocallables, absolute return barrier notes, principal-protected notes, dual directionals, and over 17,000 individual products freely available in our searchable structured product database.

Recently, the SEC has required structured product issuers to disclose an...

Structured Investments Linked to Proprietary Indices

Structured products are often linked to well known indices like the S&P 500 or the Dow Jones Industrial Average, but recently it has become more and more common for banks to issue structured investments linked to proprietary indices that they create themselves. The use of proprietary indices (also known as 'self-indexing') has begun to arouse suspicion from various sources and so we thought we'd take a step back and talk about the issue for a moment.

Structured products linked to well-known...

Reverse Convertibles and Event Risk

Reverse convertibles are short-term debt securities issued by banks whose return of principal at maturity is contingent upon the returns of the linked stock. Although these notes typically pay relatively high coupons, they expose investors to losses on the underlying asset, especially if those losses are beyond the trigger level. Academic research shows that these coupons are not adequately compensating the investor for the market risk that they are bearing by investing in the notes. For...

Investors Bristle at New Structured Product Valuations

Back in February, the SEC issued a letter to structured product issuers that required them to estimate and prominently state the estimated value of the notes to investors. According to Risk.net, as issuers have begun doing so, many investors have "expressed surprise" at how low those valuations are.

However, these valuations should be no surprise to anyone familiar with the structured product literature, which has documented significant discounts for a wide variety of product types. You can...

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