Publicação
Pricing Multi Barrier Reverse Convertibles: An empirical investigation using Swiss Market data
| Resumo: | This dissertation provides an overview of structured products in the Swiss market and the impact of basket correlation on multi-barrier reverse convertibles. Structured products are typically composed of two main components: a zero-coupon bond and an embedded option strategy. In most cases, investors favour equity derivatives – such as stocks, indices or ETFs as the primary underlying. However, similar payoff structures can be applied to rates, currency and credit, for simplicity this dissertation focuses exclusively on equity-based products within the Swiss market. The purpose of this study is to evaluate pricing errors arising from the correlation among the basket constituents. The selected product commonly referred to as multi-barrier reverse convertible, is designed such that its performance depends on the worst-performing asset within the basket. This research applies a pricing approach based on the Heston stochastic volatility model. Using its characteristic function, a semiclosed solution for long calls is used to calibrate the model, while Monte Carlo simulation is employed to price the basket worst-of short down-and-in put option. Correlation shocks are applied to the asset correlation matrix to justify and quantify price discrepancies between public market data for these products and the model-generated values. |
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| Autores principais: | Amaro, Luís Filipe Marta de Paiva |
| Assunto: | Structured products Derivatives Heston model Correlation Barrier reverse convertible Monte Carlo SDG 4 - Quality education SDG 8 - Decent work and economic growth SDG 9 - Industry, innovation and infrastructure SDG 16 - Peace, justice and strong institutions SDG 17 - Partnerships for the goals |
| Ano: | 2025 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | This dissertation provides an overview of structured products in the Swiss market and the impact of basket correlation on multi-barrier reverse convertibles. Structured products are typically composed of two main components: a zero-coupon bond and an embedded option strategy. In most cases, investors favour equity derivatives – such as stocks, indices or ETFs as the primary underlying. However, similar payoff structures can be applied to rates, currency and credit, for simplicity this dissertation focuses exclusively on equity-based products within the Swiss market. The purpose of this study is to evaluate pricing errors arising from the correlation among the basket constituents. The selected product commonly referred to as multi-barrier reverse convertible, is designed such that its performance depends on the worst-performing asset within the basket. This research applies a pricing approach based on the Heston stochastic volatility model. Using its characteristic function, a semiclosed solution for long calls is used to calibrate the model, while Monte Carlo simulation is employed to price the basket worst-of short down-and-in put option. Correlation shocks are applied to the asset correlation matrix to justify and quantify price discrepancies between public market data for these products and the model-generated values. |
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