{"title":"Market pricing of credit-linked notes: the case of retail structured products in Germany","authors":"A. Rathgeber, Yun Wang","doi":"10.21314/JCR.2011.149","DOIUrl":null,"url":null,"abstract":"The volume of the primary market of certificates for retail investors has increased enormously in the past ten years, and German banks have recently started issuing credit-linked notes (CLNs). As with other types of certificates, the question can be raised as to whether coupon payments for these instruments are fair and adequate compared with the related risk and, if not, what the reasons for this mispricing are. In this paper we analyze the pricing of 136 outstanding CLNs and discover that CLNs are generally greatly overpriced in the primary market. Furthermore, we find strong evidence for an essential hypothesis that is still debated in the literature: the more complex the product and the less transparent the market, the more overpricing there tends to be.","PeriodicalId":44244,"journal":{"name":"Journal of Credit Risk","volume":"28 1","pages":""},"PeriodicalIF":0.3000,"publicationDate":"2011-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"5","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Credit Risk","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.21314/JCR.2011.149","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 5
Abstract
The volume of the primary market of certificates for retail investors has increased enormously in the past ten years, and German banks have recently started issuing credit-linked notes (CLNs). As with other types of certificates, the question can be raised as to whether coupon payments for these instruments are fair and adequate compared with the related risk and, if not, what the reasons for this mispricing are. In this paper we analyze the pricing of 136 outstanding CLNs and discover that CLNs are generally greatly overpriced in the primary market. Furthermore, we find strong evidence for an essential hypothesis that is still debated in the literature: the more complex the product and the less transparent the market, the more overpricing there tends to be.
期刊介绍：
With the re-writing of the Basel accords in international banking and their ensuing application, interest in credit risk has never been greater. The Journal of Credit Risk focuses on the measurement and management of credit risk, the valuation and hedging of credit products, and aims to promote a greater understanding in the area of credit risk theory and practice. The Journal of Credit Risk considers submissions in the form of research papers and technical papers, on topics including, but not limited to: Modelling and management of portfolio credit risk Recent advances in parameterizing credit risk models: default probability estimation, copulas and credit risk correlation, recoveries and loss given default, collateral valuation, loss distributions and extreme events Pricing and hedging of credit derivatives Structured credit products and securitizations e.g. collateralized debt obligations, synthetic securitizations, credit baskets, etc. Measuring managing and hedging counterparty credit risk Credit risk transfer techniques Liquidity risk and extreme credit events Regulatory issues, such as Basel II, internal ratings systems, credit-scoring techniques and credit risk capital adequacy.
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