Publications
Publications
- 2021
The Price Effects of Innovative Security Design
By: Boris Vallée, Gordon Liao and Claire Célérier
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.