Risk Management by Structured Derivative Product Companies

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Economic Policy Review

Risk Management by Structured Derivative Product Companies

April 1996 Volume 2, Number 1

JEL classification: G13, G21, G23

Authors: Eli M. Remolona, William Bassett, and In Sun Geoum

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.

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22 pages / 282 kb

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