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Generic Cancellable Derivative Model

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  • David Finpricing Lee

    (FinPricing)

Abstract

Many financial derivative products have cancellation provision. They usually have a regular leg and a cancellation leg. The cancellation leg can cancel the regular leg when a cancellation event occurs. This paper presents a generic model for representing and pricing cancellable derivatives. It computes the cancellation probability, fair value, and risk of a cancellable note.

Suggested Citation

  • David Finpricing Lee, 2022. "Generic Cancellable Derivative Model," Working Papers hal-03749503, HAL.
    • Handle: RePEc:hal:wpaper:hal-03749503
    Note: View the original document on HAL open archive server: https://hal.science/hal-03749503
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    References listed on IDEAS

    as
    1. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
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    3. Martzoukos, Spiros H. & Trigeorgis, Lenos, 2002. "Real (investment) options with multiple sources of rare events," European Journal of Operational Research, Elsevier, vol. 136(3), pages 696-706, February.
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    5. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    Full references (including those not matched with items on IDEAS)

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