Implied risk aversion: an alternative rating system for retail structured products

H. Fink (), S. Geissel (), J. Sass () and F. T. Seifried ()
Additional contact information
H. Fink: Munich University of Applied Sciences
S. Geissel: HSBC Germany
J. Sass: University of Kaiserslautern
F. T. Seifried: University of Trier

Review of Derivatives Research, 2019, vol. 22, issue 3, No 1, 357-387

Abstract: Abstract This article proposes implied risk aversion as a rating methodology for retail structured products. Implied risk aversion is based on optimal expected utility risk measures as introduced by Geissel et al. (Stat Risk Model 35(1–2):73–87, 2017) and, in contrast to standard V@R-based ratings, takes into account both the upside potential and the downside risks of such products. In addition, implied risk aversion is easily interpreted in terms of an individual investor’s risk aversion: a product is attractive for an investor if his individual relative risk aversion is smaller than the product’s implied risk aversion. We illustrate our approach in a case study with more than 15,000 short-term warrants on DAX that highlights some differences between our rating system and the traditional V@R-based approach.

Keywords: Structured products; Risk measures; Optimal expected utility; Implied risk aversion (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11147-018-9151-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:22:y:2019:i:3:d:10.1007_s11147-018-9151-0

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11147/PS2

DOI: 10.1007/s11147-018-9151-0

Access Statistics for this article

Review of Derivatives Research is currently edited by Gurdip Bakshi and Dilip Madan

More articles in Review of Derivatives Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().