Characteristics and pricing model of Targeted Income Strategic Total Return Securities (TISTRS)

The Targeted Income Strategic Total Return Securities (TISTRS) represent a new form of equity-linked structured notes that have become the focus of much attention lately as a new financial innovation. The paper derives a general pricing model for the TISTRS, studies the factors that may impact the TISTRS' performance, examines the investment performance of the TISTRS and a set of standard asset classes (the S&P 500 total return, the BXM Index and 1-year T-bill) over the period from 1990 to 2006, and simulates the TISTRS' strategy using geometric Brownian motion approach. In conclusion, the TISTRS' strategy can offer investors an opportunity to potentially earn a risk-adjusted return while having current income.