Evaluation of Equity-linked structured products and pricing

Chaitali Kotadia

doi:10.31686/ijier.vol9.iss1.2902

Authors

Chaitali Kotadia

MSD(UK)Ltd, Finance Department,London

DOI:

https://doi.org/10.31686/ijier.vol9.iss1.2902

Keywords:

Structured products, Pricing, Option, Implied Volatility

Abstract

Based on a unique data set, this research paper examines the pricing of equity-linked structured products in the market. The following section of this paper look at examining a few popular products available in the market, describing their key characteristics, and identifying one such product which will be examined closely for the purposes of determining if the issuing institution has priced the same fairly. The daily closing prices of a large variety of structured products are compared to theoretical values derived from the prices of options traded on the Eurex (European Exchange). This research paper also provides a brief background on the pricing of equity-linked structured products (‘products’) and issues around valuation of these products and look in detail fair pricing of the zero-coupon bond and the basket option. Comparing this with the market price of the instrument I could draw conclusions based on how close the real market price of the instrument is with the recomputed price.

Author Biography

Chaitali Kotadia, MSD(UK)Ltd, Finance Department,London

Sr. Finance Analyst

References

Baubonis, C., Gastineau, G.L., Purcell, D., 1993. The banker’s guide to equity-linked certificates of deposit. The Journal of Derivatives 1 (Winter), 87–95. DOI: https://doi.org/10.3905/jod.1993.407880

Chen, A.H., Kensinger, J.W., 1990. An analysis of market-index certificates of deposit. Journal of Financial Services Research 4 (2), 93–110. DOI: https://doi.org/10.1007/BF00352565

Chen, K.C., Sears, R.S., 1990. Pricing the SPIN. Financial Management 19 (2, Summer), 36–47. DOI: https://doi.org/10.2307/3665633

Das, S., 2000. Structured Products and Hybrid Securities, second ed. New York.

Despite Record $50 Billion in 2005, Structured Products Remain ‘Wall Street’s Best Kept Secret’,” SPA Chairman’s Letter, February 2006, p. 1,2.

‘Financial Instruments –The Structured Products Handbook’ Oesterreichische National bank

https://www.docin.com/p-78671211.html

Pavel A. Stoimenov, Sascha Wilkens., 2004. Are structured products fairly priced? An analysis of the German market for equity-linked instruments. Journal of Banking & Finance 29 (2005) 2971–2993. DOI: https://doi.org/10.1016/j.jbankfin.2004.11.001

https://www.sciencedirect.com/science/article/abs/pii/S0378426604002511

E. G. Haug, “The Complete Guide to Option Pricing Formulas”, 1997, McGraw-Hill,( p. 96,97)

Wasserfallen, W., Schenk, C., 1996. Portfolio insurance for the small investor in Switzerland. The Journal of Derivatives 3 (Spring), 37–43. DOI: https://doi.org/10.3905/jod.1996.407947

The Monte Carlo Method 1st Edition, The Method of statistical Trials,Yu.A.Shreider,1966,(P67-72)

Levy,1992 Levy, E.(1992). Pricing European average rate currency options. Journal of International Money and Finance,11:474-491. DOI: https://doi.org/10.1016/0261-5606(92)90013-N

https://econpapers.repec.org/article/eeejimfin/v_3a11_3ay_3a1992_3ai_3a5_3ap_3a474-491.htm

Hammersley, J. M., D. C. Handscomb: Monte Carlo Methods. Methuen & Co., London, and John Wiley & Sons, New York, 1964. VII + 178 S., Preis: 25 s DOI: https://doi.org/10.1007/978-94-009-5819-7_3

Monte Carlo, Concepts, Algorithms, and Applications, Authors Fishman, George(1973-P.91,92)

http://www.riskglossary.com/link/asian_option.htm

Turnbull, S., & Wakeman, L. (1991). A Quick Algorithm for Pricing European Average Options. Journal of Financial and Quantitative Analysis, 26, 377-389. DOI: https://doi.org/10.2307/2331213

https://doi.org/10.2307/2331213 DOI: https://doi.org/10.2307/2331213