Volume 16 | Issue 4 | Article 2
<< Previous Article
| Next Article >>
Back To: Table of Contents
An Economic Analysis of Bonus Certificates — Second-Generation of Structured Products
In this paper we provide an economic analysis for a newly created financial structured product known as bonus certificates. We study the €123 billion market by examining 5,560 issues of the certificates. We show that bonus certificates are engineered from a combination of four positions: a long position in standard call options, a short position in standard call options with a different exercise price, a long position in a zero-coupon bond, and a short position in down-and-in put options. We further develop pricing models for two types of certificates, uncapped and capped certificates, and we empirically examine the profits in the primary market for issuing the two types of certificates. We find that issuance of the certificates is profitable for the issuers in our sample.
