Comparing the risk/return profile of index-linked bonds and their reference indices from a private investor`s point of view
Lilja, Emma (2013)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-201305066607
https://urn.fi/URN:NBN:fi:amk-201305066607
Tiivistelmä
Index-linked bonds are capital guaranteed structured investment products, which are tai-lor-made to meet the investor’s needs and risk tolerance. The structure of an index-linked bond is complex; it consists of a zero-coupon bond and an equity option tied to a refer-ence index. The return of an index-linked bond is determined by the development of the reference index, participation coefficient, averaging and valuation days, which all are de-fined and specified in the loan terms of the index-linked bond. Due to the complex struc-ture of an index-linked bond the evaluation of risks and performance indicators is chal-lenging as well as understanding the actual formation of the return.
The purpose of this Bachelor Thesis is to investigate the risk/return profile of index-linked bonds and compare it to the underlying reference indices. The sample in the empirical part consists of six index-linked bonds, four issued by Nordea and two by OP-Pohjola. These bonds are processed and evaluated case by case on a yearly basis, from a private investor’s point of view. The variables the author has computed are return, volatility and Sharpe ratio, all of which are presented on an annual level. The raw data for the empirical part of the Bachelor thesis has been gathered from Nordea Markets, Bloomberg Professional and AdEconomics. In order to be able to evaluate and observe the perfor-mance of both, index-linked bonds and reference indices and especially analyze the nu-merical data, the author has utilized quantitative research methods.
Depending on the market conditions, during an upbeat the indices clearly outperformed the index-linked bonds and vice versa.
The purpose of this Bachelor Thesis is to investigate the risk/return profile of index-linked bonds and compare it to the underlying reference indices. The sample in the empirical part consists of six index-linked bonds, four issued by Nordea and two by OP-Pohjola. These bonds are processed and evaluated case by case on a yearly basis, from a private investor’s point of view. The variables the author has computed are return, volatility and Sharpe ratio, all of which are presented on an annual level. The raw data for the empirical part of the Bachelor thesis has been gathered from Nordea Markets, Bloomberg Professional and AdEconomics. In order to be able to evaluate and observe the perfor-mance of both, index-linked bonds and reference indices and especially analyze the nu-merical data, the author has utilized quantitative research methods.
Depending on the market conditions, during an upbeat the indices clearly outperformed the index-linked bonds and vice versa.