earticle

영어

This paper explores three types of risk that unsophisticated retail investors may be exposed to when purchasing a structured product. First, the retail investors who are not suciently knowledged about derivatives bear knowledge asymmetry risk against the issuer. Not many investors understand the valuation model of derivatives embedded in the structured products they purchase. Even in the case that they understand the model, they are not knowledgeable enough to gauge the fairness of input parameters required and may overpay. Secondly, the retail investors are exposed to information asymmetry against the issuer. The issuer can optimally time the issuance of overvalued structured products given their superior information set and also determine structural parameters to maximize potential prots. Finally, unwinding a delta hedge position of the issuer puts negative pressure on the underlying security price to their disadvantage at redemption dates. If the retail investors were sophisticated enough to infer such incentives of the issuer, such risk should be factored into the price of the structured product at its issuance. We build up a theoretical model for gauging the amount of required discount. In addition, we provide empirical evidence for issuance timing behavior of the issuer and for negative price impact of unwinding hedge positions around redemption dates by using Two Asset Reverse Convertibles (TARCs) in Korea.