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Autocall structured products: a case study of Vale S.A

Author

Listed:
  • Paulo Vitor Jordão Da Gama Silva
  • Antonio Carlos Figueiredo Pinto
  • Marcelo Cabus Klotzle

Abstract

This article analyses the pricing, using autocall mechanisms, of a coupon barrier note issue based on ADRs of Brazil's biggest mining and metals company: Vale S.A. (VALE). The numerical method used was based on a modification of the trinomial tree model with auto-call, barrier and knock-in conditions, and which was modified to calculate present value. This model was shown to be practical and agile for processing the database and handling considerably volatile scenarios and was also validated by the product's actual behaviour, revealing that the product was not financially attractive for maintaining an autocall operation strategy (achieve a gain with the product maturing in the short term and switch to similar products). The aim of this article is to show a new pricing method involving autocall structured products with functioning typologies similar to those of the issue analysed in the present study.

Suggested Citation

  • Paulo Vitor Jordão Da Gama Silva & Antonio Carlos Figueiredo Pinto & Marcelo Cabus Klotzle, 2012. "Autocall structured products: a case study of Vale S.A," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 3(1), pages 71-90.
    • Handle: RePEc:ids:ijfmkd:v:3:y:2012:i:1:p:71-90
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