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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 11-20 out of 71 results

Securities-Based Lending

By: Paul Meyer

A perfect storm of soaring equity values and historically low interest rates has sparked a borrowing binge among securities investors. Securities-based loans ("SBLs") are a very attractive product for the broker-dealers who market them. However, SBLs impose substantial risks on borrowers. These risks are easy to overlook in a buoyant market but will eventually wreak havoc on the financial wellbeing of investors who are not prepared to withstand the next bear market. In this paper, Paul Meyer...

Fiduciary Duties and Non-traded REITs

By: Craig McCann

A summary of SLCG's analysis of investor returns in 81 non-traded REITs. Investors are at least $45.5 billion worse off as a result of investing in the 81 non-traded REITs compared to investing in a diversified portfolio of traded REITs. Investors in non-traded REITs over the past 25 years would have earned as much or more investing in short and intermediate term US Treasury securities without bearing the risks and illiquidity of non-traded REITs. More than half of the non-traded REITs'...

An Empirical Analysis of Non-Traded REITs

By: Brian Henderson, Joshua Mallett, and Craig McCann

We find that returns to 81 non-traded REITs which had listed, been acquired by or merged with a listed REIT or had updated per share values average 6.3% annually compared to 11.6% returns earned over the same period in traded REITs. A significant portion of non-traded REITs' $45 billion underperformance results from high up?front fees that average 13.2%, and largely compensate brokers. The remainder of the shortfall results from conflicts of interest that permeate the organizational...

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,...

Efficient Valuation of Equity-Indexed Annuities Under Lévy Processes Using Fourier-Cosine Series

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

Equity-Indexed Annuities (EIAs) are deferred annuities which accumulate value over time according to crediting formulas and realized equity index returns. We propose an efficient algorithm to value two popular crediting formulas found in EIAs - Annual Point-to-Point (APP) and Monthly Point-to-Point (MPP) - under general Lévy-process based index returns. APP contracts observe returns of referenced indexes annually and credit EIA accounts, subject to minimum and maximum returns. MPP contracts...

The Fall of Willow

By: Geng Deng and Craig McCann

From May 8, 2000 until June 30, 2007, the UBS Willow Fund was invested in distressed obligations with offsetting but smaller cash and synthetic short debt positions through credit default swaps (CDS). After June 2007 the Fund dramatically increased its purchases of CDS and became massively short distressed debt. Investors in the Fund lost $278.4 million during this second period from June 2007 to December 2012 and the Willow Fund was liquidated in 2013.

The Willow Fund understated the risk...

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...

Valuation of Reverse Convertibles in the VG Economy

By: Geng Deng, Tim Dulaney, and Craig McCann

Prior research on structured products has demonstrated that equity-linked notes sold to retail investors in initial public offerings are typically issued at above their fair market value. A particular type of equity-linked note reverse convertibles embed down-and-in put options and other investors relatively high coupon payments in exchange for bearing some of the downside risk of the equity underlying the note. We analytically study the magnitude of the overpricing of reverse...

Crooked Volatility Smiles: Evidence from Leveraged and Inverse ETF Options

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

We find that leverage in exchange traded funds (ETFs) can affect the "crookedness" of volatility smiles. This observation is consistent with the intuition that return shocks are inversely correlated with volatility shocks - resulting in more expensive out-of-the-money put options and less expensive out-of-the-money call options. We show that the prices of options on leveraged and inverse ETFs can be used to better calibrate models of stochastic volatility. In particular, we study a...

Modeling a Risk-Based Criterion for a Portfolio with Options

By: Geng Deng, Tim Dulaney, and Craig McCann

The presence of options in a portfolio fundamentally alters the portfolio's risk and return profiles when compared to an all equity portfolio. In this paper, we advocate modeling a risk-based criterion for optioned portfolio selection and rebalancing problems. The criterion is inspired by Chicago Mercantile Exchange's risk-based margining system which sets the collateralization requirements on margin accounts. The margin criterion computes the losses expected at the portfolio level using...

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