Transparent structured products for retail investors

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dc.contributorAalto-yliopistofi
dc.contributorAalto Universityen
dc.contributor.authorKallio, Markkuen_US
dc.contributor.authorHalme, Merjaen_US
dc.contributor.authorHardoroudi, Nasim Dehghanen_US
dc.contributor.authorAspara, Jaakkoen_US
dc.contributor.departmentDepartment of Information and Service Managementen
dc.date.accessioned2022-06-08T06:13:59Z
dc.date.available2022-06-08T06:13:59Z
dc.date.issued2022-10en_US
dc.description.abstractStructured investment products (SPs) are derivative securities whose return is contingent on the return of their underlying assets, such as a certain stock market index. SPs have been criticized for being complex and costly on the inside, while attracting retail investors with emotionally appealing promises, on the surface, to provide tempting yields and protection for the capital invested. To circumvent such criticism, we consider transparent SPs (TSPs), which simply offer a lower and upper limit on annual return (after costs and fees) as well a transparent rule defining the return based on the return of the underlying asset. We study TSPs using both empirical and theoretical approaches. An empirical survey of real investors with best-worst scaling as well as theoretical analyses based on utility theory and multi-stage stochastic programming (MSSP) show that moderately priced TSPs are competitive in comparison with other investment products, such as index funds. Furthermore, retail investors actually exhibit substantial preference for TSPs with partial capital guarantees, over and above SPs with the superficially tempting, full capital guarantees. A theoretical, MSSP-based analysis similarly confirms that including TSPs in an investment portfolio can yield substantial gains in certainty equivalent annual return. The results further indicate that perceived gains from TSPs are sensitive to costs, market imperfections, and interest rates, as well as private preferences and stock market expectations of retail investors. This demonstrates how MSSP can be applied to financial engineering for successful implementation of TSPs in future financial markets.en
dc.description.versionPeer revieweden
dc.format.extent16
dc.format.extent752-767
dc.format.mimetypeapplication/pdfen_US
dc.identifier.citationKallio, M, Halme, M, Hardoroudi, N D & Aspara, J 2022, ' Transparent structured products for retail investors ', European Journal of Operational Research, vol. 302, no. 2, pp. 752-767 . https://doi.org/10.1016/j.ejor.2022.01.014en
dc.identifier.doi10.1016/j.ejor.2022.01.014en_US
dc.identifier.issn0377-2217
dc.identifier.otherPURE UUID: db20bbe6-3177-4389-9847-6c4c28177e84en_US
dc.identifier.otherPURE ITEMURL: https://research.aalto.fi/en/publications/db20bbe6-3177-4389-9847-6c4c28177e84en_US
dc.identifier.otherPURE LINK: http://www.scopus.com/inward/record.url?scp=85123725750&partnerID=8YFLogxKen_US
dc.identifier.otherPURE LINK: https://www.sciencedirect.com/science/article/pii/S0377221722000327en_US
dc.identifier.otherPURE FILEURL: https://research.aalto.fi/files/83871069/Transparent_structured_products_for_retail_investors.pdfen_US
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/114806
dc.identifier.urnURN:NBN:fi:aalto-202206083649
dc.language.isoenen
dc.publisherElsevier Science B.V.
dc.relation.ispartofseriesEuropean Journal of Operational Researchen
dc.relation.ispartofseriesVolume 302, issue 2en
dc.rightsopenAccessen
dc.subject.keywordFinanceen_US
dc.subject.keywordStructured productsen_US
dc.subject.keywordStochastic programmingen_US
dc.subject.keywordUtility theoryen_US
dc.subject.keywordDiscrete choiceen_US
dc.titleTransparent structured products for retail investorsen
dc.typeA1 Alkuperäisartikkeli tieteellisessä aikakauslehdessäfi
dc.type.versionpublishedVersion
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