Please use this identifier to cite or link to this item: http://hdl.handle.net/1783.1/2885

Target redemption notes

Authors Chu, Chi Chiu
Kwok, Yue Kuen
Issue Date 2007
Source JOURNAL OF FUTURES MARKETS , v. 27, (6), 2007, JUN, p. 535-554
Summary The target redemption note is an index-linked note that provides a guaranteed SLIM 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. (c) 2007 Wiley Periodicals, Inc.
Subjects
ISSN 0270-7314
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
Language English
Format Article
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