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Analytical valuation of autocallable notes

Author

Listed:
  • Tristan Guillaume

    (Université de Cergy-Pontoise, Laboratoire Thema, 33 boulevard du port, F-95011 Cergy-Pontoise Cedex, France)

Abstract

In this paper, a general form of autocallable note is analytically valued, which includes the following features: regular coupons, reverse convertible provision and possible participation in the growth of the underlying equity asset. Simpler notes can be designed and analytically priced on the basis of this general structure. The equity asset follows a jump-diffusion process, while interest rates are driven by a two-factor model. Equity and interest rate sources of randomness are correlated. The numerical implementation is easy and very efficient compared to alternative valuation techniques. The formula provided in this paper can thus be expected to be a valuable tool for both buyers and issuers in terms of pricing and risk management.

Suggested Citation

  • Tristan Guillaume, 2015. "Analytical valuation of autocallable notes," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-23.
    • Handle: RePEc:wsi:ijfexx:v:02:y:2015:i:02:n:s2424786315500164
    DOI: 10.1142/S2424786315500164
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    Citations

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    Cited by:

    1. Huang, Min & Luo, Guo, 2022. "A simple and efficient numerical method for pricing discretely monitored early-exercise options," Applied Mathematics and Computation, Elsevier, vol. 422(C).
    2. Min Huang & Guo Luo, 2019. "A simple and efficient numerical method for pricing discretely monitored early-exercise options," Papers 1905.13407, arXiv.org, revised Jun 2019.

    More about this item

    Keywords

    Autocallable; valuation; jump-diffusion; equity-rate correlation; multivariate normal distribution; G13; C63;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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