Skip to main content
Skip to main menu Skip to spotlight region Skip to secondary region Skip to UGA region Skip to Tertiary region Skip to Quaternary region Skip to unit footer


Donald Richards

<a href="">Penn State University</a>

We analyze the mathematical foundations of three types of structured financial products: return optimization securities, yield magnet notes, and reverse exchangeable notes. These products were sold widely to retail "investors" in the mid-2000s. On the basis of their mathematical structure, we infer that these products could provide positive returns to a purchaser only if the stock market had continued on an enormous upward climb for most or all of the holding period. In particular, the purchaser ran high risk of moderate-to-large risk of high losses of principal even if the stock market had remained relatively flat for a protracted period of time. We conclude that such structured investment products are unsuitable for typical unsophisticated retail "investors". In fact, we will also show that these products generally were unsuitable for sophisticated investors.

Support us

We appreciate your financial support. Your gift is important to us and helps support critical opportunities for students and faculty alike, including lectures, travel support, and any number of educational events that augment the classroom experience. Click here to learn more about giving.

Every dollar given has a direct impact upon our students and faculty.