 We present a theory of product design covering a large class of investors. Bayesian laws of information processing provide the logical foundation and lead to a simple structuring tool -- the payoff elasticity equation. Structuring of investment derivatives is summarized as a manufacturing process .
Financial derivatives have often been compared to instruments of gambling. It turns out that many naive ways of making them do indeed lead to behavior which is mathematically equivalent to gambling. Fortunately, this inadvertent effect can be understood and prevented. We present a theory of product design which allows us to do that .
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Financial derivatives have often been compared to instruments of gambling. It turns out that many naive ways of making them do indeed lead to behavior which is mathematically equivalent to gambling. Fortunately, this inadvertent effect can be understood and prevented.
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covering a large class of investors. Bayesian laws of information processing provide the logical foundation and lead to a simple structuring tool -- the payoff elasticity equation. Structuring of investment derivatives is summarized as a manufacturing process
which allows us to do that