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Prof. Alexander Wagner, SFI@UZH, presents at Conference on Regulating Financial Markets in Frankfurt

Posted by
Anita Belitz Krasniqi
on
Tuesday, June 7, 2016 - 17:00

SFI Professor Alexander Wagner, University of Zurich, presented a paper on Structured Products at the Conference on Regulating Financial Markets, organized by Deutsche Bundesbank, SAFE, ZEW, and CEPR in Frankfurt from May 30 to May 31.  See the presentation slides here.

In the paper "Neglected Risk: Evidence from Structured Product Counterparty Exposure", Prof. Wagner and his co-authors show that initial offering prices of simple structured products do not reflect issuer credit risk before the Lehman default. After this event, credit risk is no longer neglected. Issuers then compensate general and even product-specific counterparty exposure. The authors find that investor attention toward issuer credit risk is a critical determinant of the occurrence of neglected risk. Additionally, banks have a propensity to construct products with larger counterparty exposure. Overall, the results shed light on whether and under which conditions financial engineering generates neglected risk in the economy.

A copy of the paper can be downloaded here.