Theoretical Economics Letters
Volume 4, Issue 5 (June 2014)
ISSN Print: 2162-2078 ISSN Online: 2162-2086
Google-based Impact Factor: 1.19 Citations h5-index & Ranking
Valuation of Certificates on a Straddle with Forward Start—Theory and Evidence ()
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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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