Risk management by structured derivative product companies

Bassett, William F.; Geoum, In Sun; Remolona, Eli M.

Journal Article

Risk management by structured derivative product companies

Abstract: In the early 1990s, some U.S. securities firms and foreign banks began creating subsidiary vehicles--known as structured derivative product companies (DPCs)--whose special risk management approaches enabled them to obtain triple-A credit ratings with the least amount of capital. At first, market observers expected credit-sensitive customers to turn increasingly to these DPCs. However, the authors find that structured DPCs--despite their superior ratings--have failed to live up to their initial promise and have yet to gain a competitive edge as intermediaries in the derivatives markets.

Keywords: Risk; Derivative securities;