PROTECT PUT CERTIFICATES - A CASE OF BEARISH STRUCTURED PRODUCTS

We introduce and describe a new financial product referred to as Protect PUT Certificates and show, based on option pricing theory, that the payoff of a Protect PUT Certificate can be duplicated by the combination of a zero coupon bond, put options on the underlying asset and call options on the und...

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Bibliographic Details
Published in:American journal of business research (Cary, N.C.) N.C.), 2014-11, Vol.7 (1), p.61
Main Authors: Hernández, Rodrigo, Jones, Jeffrey S, Gu, Jenny
Format: Article
Language:English
Subjects:
Equity
Investments
Profits
Put & call options
Securities prices
Structured products
Studies
Valuation
Online Access:Get full text
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Summary:We introduce and describe a new financial product referred to as Protect PUT Certificates and show, based on option pricing theory, that the payoff of a Protect PUT Certificate can be duplicated by the combination of a zero coupon bond, put options on the underlying asset and call options on the underlying asset. We also empirically examine a Protect PUT Certificate issued by WestLB AG that was issued in October 2004 to investigate if the issuer made a profit in the primary market. Consistent with previous research on structured products, issuers generate considerable profit in the primary market. Finally, we simulate the sensitivities of Protect PUT Certificates to changes in different pricing input variables and parameters used in the design of Protect PUT Certificates.
ISSN:1934-6484