Viewed at a distance and with scholarly detachment, financial innovation is a simple process. Some kind of “shock”—say, a sudden increase in interest rates volatility or a significant regulatory change – is introduced into the economic system. The shock alters the preferences either investors or issuers in such a way that there then exists no financial instrument capable of satisfying a newly-created demand. Observing the unsatisfied demand, an entrepreneur moves quickly to seize the opportunity by creating a new financial instrument. In the process, the entrepreneur reaps an economic reward for his efforts, investors and issuers are better served, and the entire economic system is improved.

On closer inspection, however, the actual process of financial innovation turns out, like most other human endeavors, to be a lot less tidy than economists’ models would have it. In this article, we provide an “up-close” view of the origin and evolution of one financial instrument—the Liquid Yield Option Note (LYON).

The LYON is a highly successful financial product introduced by Merrill Lynch in 1985. Between April 1985 and December 1991, Merrill Lynch served as the underwriter for 43 separate LYON issues, which together raised a total of $11.7 billion for corporate clients. LYON issuers include such well-known firms as American Airlines, Eastman Kodak, Marriott Corporation, and Motorola. In 1989, other underwriters entered the market and have since brought an additional 13 LYON-like issues to market. In the words of a recent Wall Street Journal article, the LYON is “one of Wall Street's hottest and most lucrative corporate finance products.”1

As academics examining a new security, we begin by posing the questions: What does the LYON provide that was not available previously? Does the LYON really increase the welfare of investors and issuers, or is it simply a “neutral mutation”—that is, a now accepted practice that serves no enduring economic purpose, but is sufficiently harmless to avoid being extinguished by competitive forces.2

In the spirit of full disclosure, however, we must admit that we are not entirely disinterested observers. Our association with the LYON is longstanding. When the early LYON issues were being brought to market in April 1985, questions arose about LYON pricing. We were hired by Merrill Lynch to develop a model for analyzing and pricing this new financial instrument. A by-product of this assignment was the opportunity to learn about the train of events that led to the creation of the LYON, and we have since followed the evolution of this market with interest. In the pages that follow, we relate what we have observed, thought, and contributed during the development of this new security.

从远处和学术的角度来看，金融创新是一个简单的过程。某种“冲击”——例如，利率波动突然增加或重大监管变化——被引入经济体系。这种冲击改变了投资者或发行人的偏好，以至于不存在能够满足新需求的金融工具。观察到未满足的需求，企业家迅速采取行动，通过创造新的金融工具来抓住机会。在此过程中，企业家的努力获得了经济回报，投资者和发行人得到了更好的服务，整个经济体系得到了改善。

然而，仔细观察就会发现，与大多数其他人类活动一样，金融创新的实际过程远不如经济学家模型所设想的那样整洁。在本文中，我们提供了一种金融工具——流动收益期权票据 (LYON) 的起源和演变的“近距离”视图。

LYON 是美林于 1985 年推出的非常成功的金融产品。在 1985 年 4 月至 1991 年 12 月期间，美林担任 43 个独立的 LYON 问题的承销商，总共为企业客户筹集了 117 亿美元。LYON 发行人包括美国航空公司、伊士曼柯达、万豪公司和摩托罗拉等知名公司。1989 年，其他承销商进入市场，此后又向市场推出了 13 种类似 LYON 的债券。用《华尔街日报》最近的一篇文章的话来说，LYON 是“华尔街最热门、最赚钱的企业融资产品之一。”1

作为研究新证券的学者，我们首先提出以下问题：LYON 提供了以前没有的什么？LYON 是否真的增加了投资者和发行人的福利，或者它只是一种“中性突变”——即，一种现在被接受的做法，没有持久的经济目的，但足够无害，不会被竞争力量所消灭。 2

然而，本着充分披露的精神，我们必须承认我们并非完全无私的观察者。我们与里昂的联系由来已久。1985 年 4 月，早期的 LYON 问题被推向市场时，出现了关于 LYON 定价的问题。美林证券聘请我们开发一个模型来分析和定价这种新的金融工具。这项任务的一个副产品是有机会了解导致创建 LYON 的一系列事件，从那以后，我们一直感兴趣地关注这个市场的演变。在接下来的几页中，我们将介绍我们在开发这种新安全性过程中的观察、思考和贡献。