A Risk- and Complexity- Rating Framework for Investment Products

Author

Seng Kee Benedict KOH, Singapore Management UniversityFollow
Cher Chiew Francis KOH, Singapore Management UniversityFollow
LEE, David Kuo Chuen, Singapore Management UniversityFollow
Kian Guan LIM, Singapore Management UniversityFollow
David NG
Kok Fai PHOON, Singapore Management UniversityFollow

Publication Type

Journal Article

Publication Date

11-2015

Abstract

Many investors who bought such investments as Lehman Brothers’ minibonds did not understand the products’ complicated features. This fact suggests that if the inherent risk and complexity of products’ structure are not clearly understood by investors, they will be unable to make informed decisions. Some practitioners have recently attempted to calibrate product complexity. The authors propose a framework for classifying investment product risk and complexity separately with a list of factors that contribute to these attributes. They demonstrate the framework’s simplicity and usefulness in helping investors make informed decisions, showing that it can be used to calibrate a variety of investment products.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Quantitative Finance; Finance

Publication

Financial Analysts Journal

Volume

71

Issue

6

First Page

10

Last Page

28

ISSN

0015-198X

Identifier

10.2469/faj.v71.n6.2

Publisher

Chartered Financial Analysts Institute

Citation

KOH, Seng Kee Benedict; KOH, Cher Chiew Francis; LEE, David Kuo Chuen; Kian Guan LIM; NG, David; and PHOON, Kok Fai. A Risk- and Complexity- Rating Framework for Investment Products. (2015). Financial Analysts Journal. 71, (6), 10-28.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4833

Additional URL

https://doi.org/10.2469/faj.v71.n6.2