Pricing and Hedging Guaranteed Equity Securities

David Lee

Working Papers from HAL

Abstract: Equity-linked securities with a guaranteed return gain popularity in financial market. The contract depends on the performance of a basket of equity components averaged over a certain period, and also guarantees the investor a minimum return. This paper presents a new method for valuing the guaranteed equity-linked securities. We compute the security's price, corresponding hedge ratios, and risk sensitivities. The model appears to be accurate over a wide range of underlying security parameters, based on numerical studies.

Keywords: Guaranteed equity security hedge ratio risk sensitivity asset pricing derivative valuation risk management JEL Classification: E44 G21 G12 G24 G32 G33 G18 G28; Guaranteed equity security; hedge ratio; risk sensitivity; asset pricing; derivative valuation; risk management (search for similar items in EconPapers)
Date: 2023-06-25
New Economics Papers: this item is included in nep-rmg
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