Are Issuer Margins Fairly Stated? Evidence from the Issuer Estimated Value for Retail Structured Products

Janis Bauer, Holger Fink and Eva Stoller
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Janis Bauer: Institute for Finance & Banking, Ludwig-Maximilians-Universität München, Ludwigstr. 28 RB, 80539 Munich, Germany
Holger Fink: Department of Computer Science and Mathematics, Munich University of Applied Sciences, Lothstr. 64, 80335 Munich, Germany
Eva Stoller: Center for Quantitative Risk Analysis, Department of Statistics, Ludwig-Maximilians-Universität München, Akademiestr. 1/I, 80799 Munich, Germany

Forecasting, 2020, vol. 2, issue 4, 1-23

Abstract: From 2014 to 2018, issuers of retail structured products in Germany established and calculated the Issuer Estimated Value (IEV), a fair value designed to offer more transparency for retail investors. By reporting the IEV in the product information sheet, banks implicitly make a statement on their expected gross margin and, as one of the first papers, we provide an empirical study of the fairness of these disclosed figures. On a sample of discount and capped bonus certificates, we find that reported issuer margins can be verified using standard option pricing models and we illustrate that hedging costs take on an important role for structured product valuation. Consequently, the answer to the raised question in the title seems to be an (initial) ‘yes’ for our chosen product sample. Even though in 2018 the IEV calculations have been replaced by similar margin and cost statements due to the newly introduced Packaged Retail and Insurance-based Investment Products Regulation, this finding might still be a good guide for future research.

Keywords: issuer estimated value; fair value; retail structured products; discount certificates; bonus certificates (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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