Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091377 | Journal of Banking & Finance | 2007 | 16 Pages |
Abstract
This paper describes the first thorough empirical analysis of the pricing of leverage products in the German retail market. These mainly exchange-traded products with an impressive trading volume are frequently advertised as long and short futures contracts, although they are theoretically equivalent to one-sided barrier options. Issuers' daily quotes for stock index products are compared to (i) theoretical values derived from the prices of Eurex options and to (ii) boundaries obtained from semi-static superhedging strategies. For the vast majority of products, bid and ask quotes significantly exceed both theoretical values and upper hedging boundaries, thus providing almost risk-free profits for the issuers.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Sascha Wilkens, Pavel A. Stoimenov,