n?u=RePEc:bde:wpaper:1526&r=all

repec.nep.mac

n?u=RePEc:bde:wpaper:1526&r=all

F is priced according to its value based on all information available, let that price be

f = E[F | X], then the SPV would want to publicly offer all stock of synthetic securities

or set q = 1. Would final investors be willing to buy all the stock of synthetic securities?

Final investors do not have the same information set as the bank and will be trying to

determine the appropriate price. Assume he/she bids the lowest possible price (linked to

the lower bound of X, denoted f 0 = E[F | X = X 0 ]). On the on hand, if the SPV/bank

receives a signal X>X 0 , the value of the security is higher than the price bid by the

final investor and thus the SPV may not be willing to sell all the stock of securities F ,

offering only a lower proportion to the market (q

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