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LUND UNIVERSITY LIBRARIES

Structured Products Modelled as Stochastic Processes

Nordin, Fredrik LU (2013) FYSM60 20121
Department of Physics
Abstract
In this thesis, the value of the two composed financial products (structured products), sprinters and auto-calls, are studied and compared to the European call option. The study is preformed using both analytical and numerical solutions, where the underlying is either said to follow a GBM-process (Geometric Brownian Motion) or a GARCH-process (Generalized Autoregressive Conditional Heteroskedasticity).
One of the main results is that the GARCHdt-model is optimistic to a larger
extent than the GBM-model. This is shown by a generally higher price of derivatives. Many times this is an effect of the individually high payoffs resulting from the simulations. This effect is clearest seen in the simulations of option, where the... (More)
In this thesis, the value of the two composed financial products (structured products), sprinters and auto-calls, are studied and compared to the European call option. The study is preformed using both analytical and numerical solutions, where the underlying is either said to follow a GBM-process (Geometric Brownian Motion) or a GARCH-process (Generalized Autoregressive Conditional Heteroskedasticity).
One of the main results is that the GARCHdt-model is optimistic to a larger
extent than the GBM-model. This is shown by a generally higher price of derivatives. Many times this is an effect of the individually high payoffs resulting from the simulations. This effect is clearest seen in the simulations of option, where the GARCHdt-simulations reach payoffs ten times higher than the highest GBM pay off. With the introduction of structured products and several underlies, this effect is somewhat damped, but still substantial. Although the GARCHdt-model gave unreasonable high payoffs occasionally, it many times out-performed the GBM-model. When compared to structured products with real data as underlies, the GARCHdt-
simulations showed a higher number of similarities than the GBM-simulations. (Less)
Please use this url to cite or link to this publication:
author
Nordin, Fredrik LU
supervisor
organization
course
FYSM60 20121
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Auto-call, GBM, GARCH, Structured products, Sprinter
language
English
id
3350148
date added to LUP
2013-01-09 13:59:54
date last changed
2013-01-09 13:59:54
@misc{3350148,
  abstract     = {In this thesis, the value of the two composed financial products (structured products), sprinters and auto-calls, are studied and compared to the European call option. The study is preformed using both analytical and numerical solutions, where the underlying is either said to follow a GBM-process (Geometric Brownian Motion) or a GARCH-process (Generalized Autoregressive Conditional Heteroskedasticity).
One of the main results is that the GARCHdt-model is optimistic to a larger
extent than the GBM-model. This is shown by a generally higher price of derivatives. Many times this is an effect of the individually high payoffs resulting from the simulations. This effect is clearest seen in the simulations of option, where the GARCHdt-simulations reach payoffs ten times higher than the highest GBM pay off. With the introduction of structured products and several underlies, this effect is somewhat damped, but still substantial. Although the GARCHdt-model gave unreasonable high payoffs occasionally, it many times out-performed the GBM-model. When compared to structured products with real data as underlies, the GARCHdt-
simulations showed a higher number of similarities than the GBM-simulations.},
  author       = {Nordin, Fredrik},
  keyword      = {Auto-call,GBM,GARCH,Structured products,Sprinter},
  language     = {eng},
  note         = {Student Paper},
  title        = {Structured Products Modelled as Stochastic Processes},
  year         = {2013},
}