Looking Inside the Investment Certificate Market, with Case Study Insights from Intesa Sanpaolo
Growing in popularity in the European and Italian markets, investment certificates are flexible, structured financial instruments that provide investors with tailored risk-return profiles. Much of the appeal for these instruments lies in their ability to combine elements of traditional securities with derivatives to meet specific investment goals, such as capital protection, income generation, or leveraged exposure.
To dig deeper into the nuances of this market, Numerix held a webinar titled Investment Certificates & Innovation: An Intesa Sanpaolo & Numerix Case Study. The informative session featured Alessandro Manini and Samuele Marafin of Intesa Sanpaolo, along with Martina Nicolao of Numerix, as they discussed details of the current market and delved into how Numerix analytics were utilized by Intesa Sanpaolo to model new types of investment certificates.
Investment Certificate Market Overview
Structured products in the European market are gaining traction. According to EUSIPA, there was significant volume growth in Europe’s structured products markets in 2024, with EUR 447 billion reported in open interest across reporting markets for Q3 2024, and of this notional amount, new issuance of investment certificates comprises a significant portion. In the webinar, Alessandro explained that investment certificates are typically listed on regulated markets in Europe as a type of security. The primary reason for the surge in investment certificate popularity boils down to their flexibility. “They are very flexible wrappers, offering an interesting alternative to direct investment into a specific underlying,” commented Alessandro.
Investment certificates can be tailored to suit the needs of different investors, offering a range of benefits from capital protection to income or growth of an underlying asset. They can also be structured with a number of different underlyings and different payoffs. As a liquid instrument, investment certificates have a very competitive time to market compared to other wrappers, such as structure fund certificates.
*In 2023, investment certificates issuance in the Italian market hit a record €26 billion. Data courtesy of Intesa Sanpaolo.
Key Considerations: Pricing Investment Certificates
Because investment certificates are complex structures they require specific considerations for modeling and pricing. Estimating the implied volatility surface demands precision for certificates tied to complex underlying assets, such as total return indices without market-implied volatility or those involving intricate components like "composite forex" effects. Quantitative practitioners often turn to advanced model libraries like those offered by Numerix which can handle the unique modelling requirements and payoffs of these instruments in order to price and manage their risk effectively.
Intesa Sanpaolo’s Perspective
Intesa Sanpaolo issues investment certificates as part of their business strategy, because of the many benefits they afford investors as discussed above, including strong liquidity, offering a flexible and efficient alternative to direct investment in specific underlying assets, and their high level of customizability to meet diverse investor needs.
In the webinar, Samuele walked through a case study example showcasing how Numerix fits into the Intesa Sanpaolo’s risk and quantitative modeling workflow. The example consisted of a European investor who was looking to buy a derivatives contract with an underlying asset denominated in their domestic currency (EUR), when the markets quote plain vanilla European derivatives in USD. The investor needed to avoid dynamic delta hedging of FX risk and wanted exposure to the total return indices. Samuele then explained how to accurately determine the implied volatility surface under these conditions, including how Numerix libraries were leveraged to achieve the desired outcome.
Pricing and Risk of Investment Certificates using Numerix
Later in the webinar, Martina Nicolao of Numerix explained how Numerix Oneview can be used for the valuation of structured products, including investment certificates, emphasizing Numerix’s highly flexible, transparent and configurable approach. Reviewing Oneview’s architectural workflow, Martina demonstrated how users can price and perform precise risk analysis of complex structured products in the platform.
*Numerix architecture/workflow for the pricing and risk of structured products, such as investment certificates.
The Oneview calculation engine processes user-supplied data, such as market and trade-related data. This data is then integrated with a repository containing templates, models, products, pricing policies, and market policies. Then, leveraging Numerix’s CrossAsset Library, the engine performs the required calculations and generates the user-requested outputs, which can undergo further aggregation processes as needed. The results include portfolio-level insights and individual calculation outputs, enabling users to view the aggregated results as well as drill down to specific trades.
Navigating Investment Certificate Market Complexity
Investment certificates have emerged as a dynamic and versatile financial instrument, gaining significant traction across European markets due to their ability to offer tailored investment solutions. Despite the complexities involved in pricing and managing risk for such products, advanced analytical tools like Numerix empower both banks and investors with the precision and flexibility needed to navigate these challenges. By leveraging innovative technology, leading financial institutions like Intesa Sanpaolo continue to drive the growth and evolution of the investment certificate market.
Watch the full webinar for deeper insight and detailed examples on this topic: Investment Certificates & Innovation: An Intesa Sanpaolo & Numerix Case Study
