2

Which kinds of assets have the following properties?

  1. Can be bought or sold in some market
  2. Pay some pre-specified amount if a pre-specified (but in the present uncertain) event occurs
  3. Has fixed maturity (i.e., ends at some point)

Stocks, for example, neither fulfill (3) nor (2). Insurance (if you are willing to call it "asset") often does not fulfill (1), i.e., cannot be sold.

CDS (credit default swaps) seem to fulfill the definition; the pre-specified event is default of some bond-issuer (if it happens, the CDS issuer pays the holder some fixed amount, and the contract "ends"). Most bonds fulfill the definition (where the fixed amount is the loan plus interest, and the event is "issuer is not broke").

What other kinds of assets, derivatives or contracts fulfill the definition?

1

Turning my comment into an answer:

A rather incomplete, off-the-cuff list:

  • binary options, tradable at an exchange or OTC, pays out $100 under certain conditions or nothing at all if the conditions aren't met, expires monthly
  • FRAs, tradable OTC, (unconditionally) pay a certain (fixed) interest rate on a fixed notional amount for a fixed period of time (i.e. the payment ends at some point)
  • currency swaps and friends (fx swaps, loan swap, etc.), can be traded OTC, pay at a future date a fixed notional amount (plus maybe coupons or interest rates) in one currency for a fixed notional amount in another currency (plus coupons/interest), it's a one-off thing so it matures on the agreed-upon date
  • any kind of bond with fixed coupons, can be traded at an exchange or OTC, pay out coupons over a fixed period of time plus the notional amount at maturity

I could go on here depending on where your focus actually is, seeing as you mentioned CDSes to me it seems like you emphasise the insurance or betting aspect, i.e. the lender pays and only sometimes the borrower would redeem them.

Apart from binary options, my list is rather the opposite: the regular 99% case is redemption and only very rarely (counterparty/issuer/borrower defaults) you end up with nothing.

If you losen your requirement 2 a bit there will be a whole plethora of products that fit your definition. For example if you accept a fixed amount, nothing (which also is kind of fixed) or a participation in the underlying for a predefined set of conditions, you could add bonus certificates for instance (they're not allowed in the US), or practically any kind of option strategy (butterfly, condor, etc.).

  • Thank you for your answer, very nice. Indeed, I am interested in the betting aspect, as you call it. With the above definition, default probabilities or the probability that the underlying event occurs could be inferred from market prices. That is why requirement 2 is important: with uncertainty about the underlying event or value paid in case it occurs, inferring the probability is difficult. – Nameless Dec 20 '13 at 19:26

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