Example 2 the structured products is guaranteed

fixed rate of emission credits is higher than variable rates. Using variable rate the individual thus gets a credit at a lower cost, but agreed to take the risk of a higher rate in the future, even if this risk is limited through provisions such as a limit of the rate (cap) or the possibility to transform the credit variable rate in credit fixed. This innovation allows banks to ensure their profits and individuals to reduce their cost of funding for a risk-taking limited. It originates in the increase in the volatility of interest rates.

Example 2: the structured products is guaranteed.

Secured structured products offer both a guarantee capital and participation in the possible increase in financial markets. In the case of a bearish market, the client will be its initial capital, but the remuneration of its placement will be zero, and thus lower than that of an investment without risk as a term. In the case of a bull market, the client will obtain compensation indexed on that market and greater than that of an investment without risk, but less than an investment in the financial markets as a portfolio of securities or mutual funds shares. Secured structured products appear thus as intermediate products: on the one hand, more efficient on average, but riskier than investments without risk, and, on the other hand, less risky but less efficient than investments in financial markets. This type of product is for customers who hate too much risk to expose their capital on the stock market, but not at the point a little performance for lower abandon markets to obtain more if it. Structured products meet this need for particular investment in this customer segment. This analysis is reflected in the chart below, which shows the relationship between performance and the risk for three types of products: investment without risk, structured products and investment in financial markets. The origin of the current success of this type of product is no doubt in the recent behaviour of the markets. After the strong fall of the stock market, which cooled more than one investor, products with a guarantee and a participation in the possible resumption markets allow these savers a return on the market. Another explanation is perhaps the evolution of the culture of the French savings, manifested by a (slightly) larger share of their financial heritage invested in shares. Guaranteed products are a good entry point for a first stock investment and an intermediate point for an investment in the financial markets as investment in mutual funds shares or the constitution of a portfolio of securities (see chart below).

What are the means available to actors such as banks to be at the forefront on financial innovation

A financial innovation has both an idea and the implementation of this idea. For the idea, the banks (whether market halls, management companies or networks banking distributors) have standby services or, more generally, in the departments of marketing. These entities look at both the products of the competition (which already reflect certain needs of the customers), but mostly to listen to their customers to identify their needs. For the implementation of the idea, at the level of the production of products, both aspects are important: the price of the product and management risks associated with products internally. For complex products with, for example, optional clauses, it is necessary to have recourse to sophisticated mathematical models. To do this, producing banks have quantitative research services able to develop such models internally.

We also note that at the present time financial innovations are not protected by patents. If a bank is launching a product today, another bank can get the same product tomorrow! Patents are particularly suitable for the industry, because most of the products (a software or a drug, for example) require very significant investments in research and development. To ensure that these investments are actually undertaken, it is necessary to give the innovative company a period of exclusivity long enough to allow it to recover these expenses and make a profit. In the banking and financial sectors, investments are relatively less important, and the existence of patents is justified can be less.

What are the most promising fields in research

Several areas of development are currently discernible: upstream, at the level of the product design, better anticipate the market demand, better understand the needs of customers and be more responsive in the development of models to assess and manage the risks of proposed products and downstream, at the level of the distribution, best selling products to customers taking into account their personal circumstances and investment objectives and explaining the features and the risks of the proposed products. We also note that the launch of new products is not without generating new risks, both at the stage of production to the stage of distribution. Inside the Bank, the models intended to manage the risks associated with products can generate themselves new risks. A model is only a representation of reality, his behaviour and its performance in terms of management can be affected by the choice of its assumptions. A question that is often is: what statistical distribution use to represent the fluctuations in market The choice of a law of Gauss (still called "normal") often tends to underestimate the extreme events such as stock market crashes. Then an act with "thick tail" will be more appropriate to take into account the frequency of these events (1). To control this risk, there is a few years the appearance of new entities in charged banks for validation of models. Also include the recent work on energy and raw materials showing that they can be a full asset class in terms of investments (2).

For customers, products may eventually do not correspond to their expectations or may not be well understood. The risks taken by clients can then translate into commercial risks to the Bank (risk of its tarnished reputation or risk of financial loss compensation of customers unhappy or, worse, at the start of the customers). In practice, the control of these risks is reflected, for example, by questionnaires aimed at better understanding the needs of the clients to offer the products that meet their objectives and notes of more complete information on products presenting different scenarios for their future development. More than a simple professionalization of the process of production and distribution, it comes to major changes in the operation of banks and the relationship with their customers