synthetic asset

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Synthetic Asset

A position in which one takes various positions to create the same effect as holding a certain asset or other investment vehicle. For example, one may borrow funds in one currency and lend the same amount in another currency in order to create the same effect as having a forward contract on one of the currencies.

synthetic asset

The combination of securities and/or assets in such a way that they produce the same financial effect as the ownership of an entirely different asset would. For example, selling a put option and buying a call option on a commodity produce the same financial effect as actually owning the underlying commodity.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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"Barclays chose riskier synthetic assets so as to win its best against them, and chose safer cash assets to ensure that its bet would actually pay off," Space Coast wrote in its complaint, adding that the evidence "lay to rest any notions of chance and instead evince deliberate-indeed, malevolent-design."

Space coast sues Barclays

For this purpose, assets are gathered into broad categories to form a small number of synthetic assets and measures are created of the evolution of portfolio shares through time.

Comments on Piazzesi and Schneider's "Bond Positions, Expectations, and the Yield Curve"

The second, and perhaps even graver problem, is that the legacy companies' culture is biased towards preserving their synthetic assets. By synthetic assets, I mean existing physical plant and equipment, existing ways of doing things, existing employment policies (as compared to hard assets which I consider to be markets, trees and environmental permits).

Friends, trying to preserve these synthetic assets is a loser's game.

Give it up!

A proxy for the expected return on liabilities can be developed by constructing a portfolio of synthetic assets with a similar risk profile to the liabilities.

An example of a performance benchmark is to generate a total return on the actual asset portfolio in excess of the return on the synthetic asset portfolio and to produce an adjusted Sharpe ratio greater than the prior year's Sharpe ratio.