Abstract - The dark side of the moon: structured products from the customer's perspective

Structured financial products have gained more and more popularity in recent years, but nevertheless has their success so far not thoroughly been analyzed. In this article we develop a theoretical framework for the design of optimal structured products and analyze the maximal utility gain for an investor that can be achieved by introducing structured products. We demonstrate on data from two of the largest markets for structured products (Germany and Switzerland) that most of the successful structured products are not optimal for a perfectly rational investor and we investigate the reasons that make them nevertheless look so attractive for many investors. Finally, we used a large-scale field experiment, in which subjects freely designed structured products, to deduce how various factors effect the preferences on structured products.

Thorsten Hens
University of Zürich
21.Oct 200

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