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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    4,443 Downloads   5,306 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.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

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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