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Market pricing of credit-linked notes: The case of retail structured products in Germany

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  • Andreas Rathgeber and Yun Wang

Abstract

ABSTRACT The volume of the primary market of certificates for retail investors has increased enormously in the past ten years, and German banks have recently started issuing credit-linked notes (CLNs). As with other types of certificates, the question can be raised as to whether coupon payments for these instruments are fair and adequate compared with the related risk and, if not, what the reasons for this mispricing are. In this paper we analyze the pricing of 136 outstanding CLNs and discover that CLNs are generally greatly overpriced in the primary market. Furthermore, we find strong evidence for an essential hypothesis that is still debated in the literature: the more complex the product and the less transparent the market, the more overpricing there tends to be.

Suggested Citation

  • Andreas Rathgeber and Yun Wang, . "Market pricing of credit-linked notes: The case of retail structured products in Germany," Journal of Credit Risk, Journal of Credit Risk.
    • Handle: RePEc:rsk:journ1:2160720
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