June 2018
Beginner
256 pages
7h 7m
English
book
Behavioral Finance for Private Banking, 2nd Edition
by Kremena K. Bachmann, Enrico G. De Giorgi, Thorsten Hens
Content preview from Behavioral Finance for Private Banking, 2nd Edition
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CHAPTER 7Product Design
7.1 INTRODUCTION
In the previous chapter, we studied decision theory as a foundation of the strategic asset allocation. The purpose of this chapter is to show which application it delivers for the evaluation and the design of structured products.
In the recent past, structured products have been very popular, particularly in Europe and East Asia. By the end of 2007 in Switzerland, there were more than 340 billion Swiss francs invested in structured products. This corresponds to 
of all assets under management invested in traditional asset classes (e.g., equities and funds). Also, there were more than 20,000 listed structured products on the Swiss stock exchange, which is an increase of 
compared to the previous year. The immense popularity of structured products is amazing since they are derivatives sometimes based on rather complicated constructions. For example, the most popular structured product in the Swiss market are reverse convertibles whose payoff might depend on a basket of assets in a nonlinear way since knock out barriers are defined.
After the collapse of Lehman Brothers and its subsequent default on its structured products, the popularity of the structured products decreased substantially. Moreover, some regulators acted and intervened in ...