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Post by Sapphire Capital on Jul 11, 2008 22:06:56 GMT 4
Capital Protected Notes: How Should They Be Advertised PATRICK ROGER Université Louis Pasteur Strasbourg I -------------------------------------------------------------------------------- January 1, 2008 Abstract: Capital protected notes are very popular structured products since the internet bubble burst in 2000. Investors are protected against large losses they could suffer if they were investing directly in the underlying index or portfolio of stocks. The protection is financed by a concession rate on the potential index return. It then seems intuitive that such products are attractive for loss averse investors. However, in the framework of a simple version of cumulative prospect theory, we show that these notes are never attractive when the investor takes the underlying index as the reference point. It is then better to advertise such notes without a comparison to a direct investment in the index. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1106749_code367837.pdf?abstractid=1106749&mirid=3
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