Neglected Risk: Evidence from Structured Product Counterparty Exposure

Item Type Monograph (Working Paper)
Abstract

This paper analyzes whether and under which conditions financial engineering creates neglected risk. Issuers of structured products compensate both general issuer and issuer-product specific counterparty exposure when investor attention toward issuer default is high, such as after the Lehman default. Our results suggest that, even with simple products, neglected risk does not dissipate when the size of the risk increases, but only when attention increases. We also show that banks have a propensity to issue products with larger counterparty exposure, which is a crucial concern for the accumulation of neglected risk in the economy.

Authors Arnold, Marc; Wagner, Alexander & Schuette, Dustin
Language English
Keywords Structured products, counterparty risk, risk attention
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2014
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2014/6
Depositing User Prof. Dr. Marc Arnold
Date Deposited 31 Mar 2014 15:31
Last Modified 03 Sep 2018 11:56
URI: https://www.alexandria.unisg.ch/publications/230730

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Citation

Arnold, Marc; Wagner, Alexander & Schuette, Dustin: Neglected Risk: Evidence from Structured Product Counterparty Exposure. School of Finance Working Paper Series, 2014, 2014/6.

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https://www.alexandria.unisg.ch/id/eprint/230730
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