Research

Our major research topics are financial engineering and the analysis of financial products, in particular derivative instruments for individual investors. These products, often referred to as “certificates”, became well-known to a broad public especially in the course of the last financial crisis, where a number of private investors faced large losses. As a consequence, there is an ongoing quest of identifying necessary regulatory adjustments and putting them into praxis, on a national level as well as on a supra-national level. The market segment is still very attractive. In Germany, more than one million different products are traded. The outstanding volume amounts to about 70 billion Euros. We shed light on this market from different perspectives, including those of the investors, the issuers, and third parties such as regulation authorities. Current research questions include:

• How do banks price their products? Which models do they use for complex structures? How does model risk affect their pricing? How do they price their own credit risk? Which hedging strategies are appropriate?
• What makes private investors buy derivative products? Are they sensitive to price changes, and do they compare competing products? Do they trust the information given in sales brochures or do they take a critical position? Is further regulation of sales brochures required?
• How do private speculators behave at the intra-day market? Do banks react to their behavior?

These main research topics are accompanied by a number of additional fields, for example focusing on:

• Volatilities on electricity markets;
• Investments and regret aversion;
• Risk measures and counterparty risk;
• Risk adequacy of regulatory standards.