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Please use this identifier to cite or link to this item:
http://hdl.handle.net/1783.1/2885
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| Title: | Target redemption notes |
| Authors: | Kwok, Yue Kuen
Chu, Chi Chiu |
| Keywords: | Target redemption note
Pricing behaviors
Financial instruments
Mathematical models |
| Issue Date: | Jun-2007 |
| Citation: | Journal of futures markets vol. 27, issue 6, June 2007, p. 535-554 |
| Abstract: | The target redemption note is an index-linked note that provides a guaranteed sum of coupons (target cap) with the possibility of early termination. In a typical structure, the coupons are calculated based on an inverse floating, London Interbank Offered Rate/Euro Interbank Offered Rate (LIBOR/Euribor) formula. Once the accumulated amount of coupons has reached the prespecified target cap, the note will be terminated with final payment of the par. The knock-out criterion depends on a path-dependent state variable defined by the running accumulated coupon sum. In some simplified cases, we manage to obtain a closed form valuation formula for the note value. We propose several numerical schemes for pricing the note under the one-factor and two-factor short rate models. Pricing behaviors of the target redemption note are also explored. |
| Rights: | This is a preprint article published in Journal of Futures Markets 27:6, June 2007, P. 535-554 © copyright (2007) (John Wiley & Sons). The original journal article is posted on the journal's web site at http://www.interscience.Wiley.com |
| URI: | http://hdl.handle.net/1783.1/2885 |
| Appears in Collections: | MATH Journal/Magazine Articles
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Files in This Item:
| File |
Description |
Size | Format |
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| tar_red.pdf | pre-published version | 163Kb | Adobe PDF | View/Open |
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