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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Displaying 10 out of 14 results

Ex-post Structured Product Returns: Index Methodology and Analysis

By: Geng Deng, Tim Dulaney, Tim Husson, Craig McCann, and Mike Yan

The academic and practitioner literature now includes numerous studies of the substantial issue date mispricing of structured products but there is no large scale study of the ex-post returns earned by structured product investors. This paper augments the current literature by analyzing the ex-post returns of nearly 18,000 individual structured products issued by 13 brokerage firms since 2007. We construct our structured product index and sub-indices for reverse convertibles,...

Valuation of Structured Products

By: Geng Deng, Tim Husson, and Craig McCann

The market for structured products has grown dramatically in the past decade. Their diversity and complexity has led to the development of many different valuation approaches, and which approach to use to value a given product is not always clear. In this paper we demonstrate and discuss four approaches to valuing structured products: simulation of the linked financial instrument's future values, numerical integration, decomposition, and partial differential equation approaches. As an...

Large Sample Valuations of Tenancies-in-Common

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

In this paper, we value a large sample of tenant-in-common (TIC) investments based on cash flow projections found in 194 private placement memoranda. Our sample of TIC offering documents covers approximately 20% of the TIC industry from 2004 to 2009. Based on the sponsor's projections, we find that the TICs on average were worth 83.6 cents per $1 paid by TIC equity investors. However, we have found that sponsors' cash flow projections overstate likely returns to investors by assuming...

The Priority Senior Secured Income Fund

By: Tim Dulaney, Tim Husson, and Craig McCann

Retail investors are being sold increasingly obscure non-conventional investments. With the Priority Senior Secured Income Fund (PSSI), issuers may have finally gone too far. PSSI is the first registered investment company that invests primarily in leveraged loans and CLOs. Unlike the mutual funds with which most retail investors are familiar, PSSI investors are not able to redeem shares daily at PSSI's net asset value. PSSI is not listed on an exchange and traded like a closed-end fund and...

Structured Product Based Variable Annuities

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Recently, a new type of variable annuity has been marketed to investors which is based on structured product-like investments instead of the mutual fund-like investments found in traditional variable annuities. Embedding a structured product into a variable annuity introduces substantial complexity into an investment typically considered conservative. In this paper, we describe structured product based variable annuity (spVA) crediting formulas and how they differ from traditional VAs, value...

Private Placement Real Estate Valuation

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

As a result of the Securities and Exchange Commission's relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets.

We have reviewed over 200 syndicated commercial real estate private placement memorandums and...

Structured Certificates of Deposit: Introduction and Valuation

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

This paper examines the properties and valuation of market-linked certificates of deposit (structured CDs). Structured CDs are similar to structured products -- debt securities with payoffs linked to market indexes -- but while structured products have garnered significant interest in both the financial media and in the academic literature, structured CDs have received relatively little attention. We review the market for structured CDs in the United States and provide valuations for several...

What is a TIC Worth?

By: Tim Husson, Craig McCann, and Carmen Taveras

Tenants-in-common interests are passive real estate investments which are sold based on two claimed benefits: stable "cash on cash" returns and deferral of capital gains tax through 1031 exchanges. The "cash on cash" returns are found in financial projections in TIC offering documents. Using a stylized TIC cash flow projection based on our review of these materials, we show that TICs use aggressive assumptions to inflate the apparent returns to investors.

Projected cash flows must be...

Dual Directional Structured Products

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

We analyze and value dual directional structured products - or simply dual directionals (DDs) - which have been issued in large amounts since the beginning of 2012. DD's evolved out of another type of structured product called absolute return barrier notes (ARBNs); however, DD's lack principal protection and have different embedded options positions, which have yet to be described in the literature. We find that DDs can be broadly organized into two categories: single observation dual...

Isolating the Effect of Day-Count Conventions

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Day-count conventions are a ubiquitous but often overlooked aspect of interest-bearing investments. While many market traded securities have adopted fixed or standard conventions, over-the-counter agreements such as interest rate swaps can and do use a wide variety of conventions, and many investors may not be aware of the effects of this choice on their future cash flows. Here, we show that the choice of day-count convention can have a surprisingly large effect on the market value of swap...

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