Dresden 2009 – scientific programme

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AGSOE: Arbeitsgruppe Physik sozio-ökonomischer Systeme

AGSOE 3: Financial Markets and Risk Management II

AGSOE 3.5: Talk

Monday, March 23, 2009, 12:00–12:15, BAR 205

Risk properties of structured financial securities offered to the general public — •Martin Treiber — TU Dresden, Germany

In the last years, a multitude of derivative financial products have been offered to the general investor. This includes not only call and put warrants but also more exotic investment vehicles such as reverse convertibles, discount calls and puts, so-called ``bonus certificates'' or ``outperformance certificates'', and structured notes that guarantee a certain return at expiration date.

In this contribution, I discuss the risk profile of such products in terms of the return distribution function and, particularly, the value at risk. As a main result, I show that the risk profiles depend strongly on the assumptions for the return profile of the underlying asset. For a lognormal distribution (Black-Scholes ansatz), analytic return profiles are derived even for some of the more exotic products. However, with the inclusion of stochastic volatility, the risk profiles change drastically. This is particularly true for the popular ``bonus certificates'' as many investors experienced at their own cost, recently.