Pricing an Equity-Linked Security with Non-Guaranteed Principal

DOI QR코드

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Cho, Jae-Koang;Lee, Hang-Suck

  • 발행 : 2007.08.31

초록

Equity-linked securities (ELS) provide their customers with the return linked to the underlying equity (or equities). Equity-linked products in Korea have recently gained popularity due to relatively low interest rates. This paper discusses an equity-linked security whose principal is not guaranteed. The payoff of the ELS depends on the returns of two underlying assets. This paper presents numerical prices of the proposed product by using Monte-Carlo simulation method. It assumes that the log-returns of two stocks follow either Brownian motion or variance gamma process. Finally, the comparison of the two approaches is discussed.

키워드

Equity-linked security;geometric Brownian motion;variance-gamma process

참고문헌

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