Interest rate structured products: can they improve the risk–return profile?

In this paper, we investigate the contribution of interest rate structured bonds to portfolios risk-averse retail investors. We conduct our analysis by simulating term structure according a multifactor no-arbitrage model and comparing performance portfolio consisting basic products (zero-coupon bonds, coupon floating notes) with containing more sophisticated exotic (like constant maturity swaps, collars, spread volatility notes). Our analysis, performed under different market environments, as well correlation levels, takes into account combined effects risk premiums required investors fees that they have pay. results show capital protected allow improve risk–return trade-off if no are considered. With fees, simulations add value in very limited number cases. believe paper contributes understanding role also light current regulatory debate on use complex financial