Pricing of a structured product on the SX5E when the uncertainty of returns is modeled as a log-stable process

José Climent Hernández and Carolina Cruz Matú
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Carolina Cruz Matú: Grupo Bolsa Mexicana de Valores, México

Contaduría y Administración, 2017, vol. 62, issue 4, 1160-1182

Abstract: This work presents the participation factor and the valuation of a first-generation structured product with European call options on the Eurostoxx, when the uncertainty of the yields is modeled through log-stable processes. The basic statistics of the index yields are also exposed, the a-stable parameters are estimated, and the valuation of the of the structured models is compared through the log-stable and log-Gaussian models using inputs from the bond markets; concluding that investors obtain higher yields than those of the bond market through both models, and that the differences of the yields depend on the participation factor and on the value of the index at the time of liquidation.

Keywords: Bonds; Valuation of options; Structured products; a-Stable distributions. (search for similar items in EconPapers)
JEL-codes: C46 D81 G11 G12 G13 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:nax:conyad:v:62:y:2017:i:4:p:1160-1182

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