An Analytic Solution for Valuing Guaranteed Equity Securities

David Lee

MPRA Paper from University Library of Munich, Germany

Abstract: Equity-linked securities with a guaranteed amount have some specific interesting features for investors, like downside protection and capital appreciation. The contract has a guaranteed return plus a payment linked to the performance of a basket of equities or indices averaged over a certain period. This article presents an analytical model for valuing equity-linked notes and computing the corresponding hedge ratios. The model appears to be accurate over a wide range of valuation parameters based on numerical studies. Finally, we use the model to value a segregated fund with a guarantee amount at maturity.

Keywords: Equity-linked securities; segregated fund; asset pricing; derivative valuation; hedge ratio. (search for similar items in EconPapers)
JEL-codes: C58 D46 G12 (search for similar items in EconPapers)
Date: 2023-06-27
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117775

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