Bindungsschwindung
Bindungsschwindung, also known as binding swing, is a phenomenon observed in the context of financial markets, particularly in the realm of derivatives and structured products. It refers to the situation where the value of a derivative or structured product is significantly influenced by the binding condition, which is the most restrictive constraint or condition that determines the payoff. This binding condition can be a cap, floor, or any other limit that restricts the potential upside or downside of the product.
The term "binding" in this context means that the condition is active and is determining the payoff
Bindungsschwindung can lead to several issues, including reduced liquidity, increased volatility, and potential mispricing of the
To mitigate the risks associated with Bindungsschwindung, financial institutions and traders often use various strategies, such