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Chapman–Kolmogorov equations for multi-period equity-linked note with conditional coupons

Author

Listed:
  • Branislav Radak

    (The Yield Book, Citigroup, New York 10013, USA)

Abstract

An equity-linked note with complex payoff and a path dependent variable maturity is analyzed analytically and numerically. This note pays up to one coupon, the size of which depends on the period count in which it is paid and with initial investment partially protected. Valuation of this instrument is achieved in closed form in terms of multivariate normal distribution function, but simple, fast and accurate numerical solution in terms of Chapman–Kolmogorov equations is preferred. The note has a number of unique features, some of which expose the investors to types of risk not usually encountered in either equity or fixed income world.

Suggested Citation

  • Branislav Radak, 2017. "Chapman–Kolmogorov equations for multi-period equity-linked note with conditional coupons," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-15, March.
    • Handle: RePEc:wsi:ijfexx:v:04:y:2017:i:01:n:s2424786317500098
    DOI: 10.1142/S2424786317500098
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    References listed on IDEAS

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