The design of bank-issued market-indexed certificates of deposit - survey, pricing and empirical test

Rodrigo Hernández, Jorge Brusa and Daniel Pu Liu

International Journal of Financial Markets and Derivatives, 2012, vol. 3, issue 1, 45-60

Abstract: In this paper we make a survey of market-indexed CDs and list 11 factors that must be taken into account in the design of market-indexed CDs. We extend the pricing model developed by Hernandez et al. (2011), which was a non-coupon paying market-indexed CD model, into a model in which the market-indexed CD pays coupons. Moreover, we apply the models developed in Hernandez et al. (2011) to market-indexed CDs to calculate the costs and profits for issuing market-indexed CDs. The results of the empirical tests indicate that the model can estimate the pricing of market-indexed CDs accurately.

Keywords: certificates of deposit; market indexed CDs; MICD; structured products; option pricing; financial innovation; pricing models. (search for similar items in EconPapers)
Date: 2012
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