| Summary: | 碩士 === 國立交通大學 === 財務金融研究所 === 95 === In this paper, a novel polynomial-time pricing algorithm based on Hull-White term structure model is introduced for pricing snowball notes. Snowball notes are sophisticated inversing floating rate bonds with path-dependent coupons, freeze at zero and redemption articles. Because of no proper closed form of Snowball notes, we must use numerical approach by trinomial tree structure to price these bonds.
Although there is another way to solve complex derivatives via Monte Carlo method, it is hard for pricing bonds with both path-dependent coupons and redemption articles. Compare with the advanced interest rate model, LIBOR market model (BGM model),its defect is hard to calculate the complex coupon of interest rate derivatives. Thus, we take simple interest mode, Hull-White short rate term structure, to be the base for pricing sophisticated Snowball notes. Furthermore, numerical experiments and sensitivity analysis are given to show the behaviors of relationship between price and parameters (spreads, zero curves and parameters of Hull-White term structure model) according to the contract issued by Bank SinoPac.
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