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Pricing of a structured product on the SX5E when the uncertainty of returns is modeled as a log-stable process

Author

Listed:
  • José Antonio Climent Hernández

    (Universidad Autónoma Metropolitana, México)

  • Carolina Cruz Matú

    (Grupo Bolsa Mexicana de Valores, México)

Abstract

This work presents the participation factor and the valuation of a first-generation structured product with European call options on the Eurostoxx, when the uncertainty of the yields is modeled through log-stable processes. The basic statistics of the index yields are also exposed, the a-stable parameters are estimated, and the valuation of the of the structured models is compared through the log-stable and log-Gaussian models using inputs from the bond markets; concluding that investors obtain higher yields than those of the bond market through both models, and that the differences of the yields depend on the participation factor and on the value of the index at the time of liquidation.

Suggested Citation

  • José Antonio Climent Hernández & Carolina Cruz Matú, 2017. "Pricing of a structured product on the SX5E when the uncertainty of returns is modeled as a log-stable process," Contaduría y Administración, Accounting and Management, vol. 62(4), pages 1160-1182, Octubre-D.
    • Handle: RePEc:nax:conyad:v:62:y:2017:i:4:p:1160-1182
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    References listed on IDEAS

    as
    1. Martin Wallmeier, 2011. "Beyond payoff diagrams: how to present risk and return characteristics of structured products," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(3), pages 313-338, September.
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    4. Scalas, Enrico & Kim, Kyungsik, 2006. "The art of fitting financial time series with Levy stable distributions," MPRA Paper 336, University Library of Munich, Germany.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bonds; Valuation of options; Structured products; a-Stable distributions.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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