The Pricing of Structured Notes : Applying Least-Squares Monte Carlo Approach

• Main Authors: Shou-Ping Wang, 王守平
• Other Authors: Chuang-Chang Chang
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/48460289772118632256

碩士 === 國立中央大學 === 財務金融學系碩士在職專班 === 98 === Due to constant changes in global financial products, how to select a reliable structured note is important to investors. How to set the reasonable hedge ratio before product kickoff is also important to issuers. The purpose of this research is to analyze the performance of structured notes and to improve the accuracy for pricing American options via Monte Carlo simulation. The least-squares Monte Carlo approach proposed by Longstaff and Schwartz (2001) claimed to price American options with complex derivatives. However, it seems difficult to apply this approach in choosing the optimal regression settings, including different basis functions and the degree of these basis functions. This paper first combines the power polynomials with optimal exercise boundary as modified optimal exercise rule. The results in the single asset imply that the modified rule with optimal exercise boundary can decrease nearly 10% RMSE when using the square degree of power polynomials. The second part of this paper is case study. In order to find the reset probability for the call warrant, the two Monte Carlo simulation systems are used in this research. For the final ELN case, we analyze the tendency of price when changing the number and the amplitude of correlation factors together with different payoffs. With these results, this paper aims to bring contributions to issuers and investors.