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  • 2021
  • Working Paper

The Price Effects of Innovative Security Design

By: Boris Vallée, Gordon Liao and Claire Célérier
  • Format:Print
  • | Language:English
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Abstract

This paper investigates the effects of the issuance of retail products with non-linear payoffs on option prices. For a given underlying asset, when the outstanding volume of products embedding a short-put position increases, implied volatility at the corresponding strike decreases. A similar pattern exists for the divident term structure: larger outstanding volumes of retail structured products are associated with a flattened divident term structured. A simple trading strategy exploiting this pattern leads to a Sharpe ratio above 2. These results are consistent with the existence of segmented markets and speak to the equilibrium effects of the retail demand for innovative securities.

Keywords

Security Design; Dividend; Options; Structured Products; Market Segmentation; Financial Instruments; Design; Volatility; Markets; Segmentation

Citation

Vallée, Boris, Gordon Liao, and Claire Célérier. "The Price Effects of Innovative Security Design." Working Paper, August 2021.
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About The Author

Boris Vallee

Finance
→More Publications

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  • Masdar City: Aiming for Sustainable and Profitable Real Estate By: Boris Vallee and Fares Khrais
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  • A Case in Point: Shared Home Equity By: Daniel Green, Boris Vallee and Sean Bracken
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