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Valuation of Certificates on a Straddle with Forward Start—Theory and Evidence

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DOI: 10.4236/tel.2014.45045    4,684 Downloads   5,628 Views Citations

ABSTRACT

This paper introduces a new financial product named Certificates on a Straddle with Forward Start and provides detailed descriptions of the product specifications. It shows that the payoff of a Certificate on a Straddle with Forward Start can be duplicated by the combination of long positions in call and put options on the underlying asset. A pricing formula is developed to price the certificates. A certificate issued by Credit Suisse is presented as an example to examine how well the model fits empirical data. The results show that issuing Certificates on a Straddle with Forward Start is a profitable business and the results are in line with previous studies pricing other structured products.

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Hernandez, R. and Shao, Y. (2014) Valuation of Certificates on a Straddle with Forward Start—Theory and Evidence. Theoretical Economics Letters, 4, 341-349. doi: 10.4236/tel.2014.45045.

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