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Conference Paper: Accumulator pricing

TitleAccumulator pricing
Authors
KeywordsAnalytic formula
Barrier structures
Cost structure
Fair price
Financial products
Issue Date2009
PublisherIEEE.
Citation
The IEEE Symposium on Computational Intelligence for Financial Engineering (CIFEr) 2009, Nashville, TN., 30 March-2 April 2009. In Proceedings of the CIFEr, 2009, p. 72-79 How to Cite?
AbstractAccumulator is a highly path dependant derivative structure that has been introduced as a retail financial product in recent years and becomes very popular in some Asian cities with its speculative nature. Despite its popularity, its pricing formula is not well known especially when there is a barrier structure. When the barrier in an accumulator contract is applied continuously, this paper obtains exact analytic pricing formulae for immediate settlement and for delay settlement. For discrete barrier, we also obtain analytic formulae which can approximate the fair price of an accumulator under both settlement methods. Through Monte Carlo simulation, we show that the approximation is highly satisfactory. With price formulae in close forms, this paper further explains how to price the product fairly to fit into its zero-cost structure. The analytic formulae also help in computing the Greeks of an accumulator which are documented in this paper. An asymmetry can be observed here that when the buyer is suffering a loss, risk characteristics like delta and vega are substantially larger than when the buyer is enjoying a profit. This means that losing buyers will be more vulnerable to price changes and volatility changes than winning buyers. This is consistent with another observation in the paper that the value at risk for the buyer can be several times larger than that of the seller. © 2009 IEEE.
Persistent Identifierhttp://hdl.handle.net/10722/132834
ISBN
References

 

DC FieldValueLanguage
dc.contributor.authorLam, Ken_HK
dc.contributor.authorYu, PLHen_HK
dc.contributor.authorXin, Len_HK
dc.date.accessioned2011-03-30T08:11:11Z-
dc.date.available2011-03-30T08:11:11Z-
dc.date.issued2009en_HK
dc.identifier.citationThe IEEE Symposium on Computational Intelligence for Financial Engineering (CIFEr) 2009, Nashville, TN., 30 March-2 April 2009. In Proceedings of the CIFEr, 2009, p. 72-79-
dc.identifier.isbn978-1-4244-2774-1-
dc.identifier.urihttp://hdl.handle.net/10722/132834-
dc.description.abstractAccumulator is a highly path dependant derivative structure that has been introduced as a retail financial product in recent years and becomes very popular in some Asian cities with its speculative nature. Despite its popularity, its pricing formula is not well known especially when there is a barrier structure. When the barrier in an accumulator contract is applied continuously, this paper obtains exact analytic pricing formulae for immediate settlement and for delay settlement. For discrete barrier, we also obtain analytic formulae which can approximate the fair price of an accumulator under both settlement methods. Through Monte Carlo simulation, we show that the approximation is highly satisfactory. With price formulae in close forms, this paper further explains how to price the product fairly to fit into its zero-cost structure. The analytic formulae also help in computing the Greeks of an accumulator which are documented in this paper. An asymmetry can be observed here that when the buyer is suffering a loss, risk characteristics like delta and vega are substantially larger than when the buyer is enjoying a profit. This means that losing buyers will be more vulnerable to price changes and volatility changes than winning buyers. This is consistent with another observation in the paper that the value at risk for the buyer can be several times larger than that of the seller. © 2009 IEEE.en_HK
dc.languageeng-
dc.publisherIEEE.-
dc.relation.ispartofIEEE/IAFE Conference on Computational Intelligence for Financial Engineering, Proceedings (CIFEr)en_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsProceedings of the IEEE/IAFE Computational Intelligence for Financial Engineering (CIFEr). Copyright © IEEE.-
dc.rights©2009 IEEE. Personal use of this material is permitted. However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE.-
dc.subjectAnalytic formula-
dc.subjectBarrier structures-
dc.subjectCost structure-
dc.subjectFair price-
dc.subjectFinancial products-
dc.titleAccumulator pricingen_HK
dc.typeConference_Paperen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=978-1-4244-2774-1 &volume=&spage=72&epage=79&date=2009&atitle=Accumulator+pricing-
dc.identifier.emailYu, PLH: plhyu@hkucc.hku.hken_HK
dc.identifier.authorityYu, PLH=rp00835en_HK
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.1109/CIFER.2009.4937505en_HK
dc.identifier.scopuseid_2-s2.0-69949088484en_HK
dc.identifier.hkuros170577-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-69949088484&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.spage72en_HK
dc.identifier.epage79en_HK
dc.description.otherThe IEEE Symposium on Computational Intelligence for Financial Engineering (CIFEr) 2009, Nashville, TN., 30 March-2 April 2009. In Proceedings of the CIFEr, 2009, p. 72-79-
dc.identifier.scopusauthoridLam, K=36492945700en_HK
dc.identifier.scopusauthoridYu, PLH=7403599794en_HK
dc.identifier.scopusauthoridXin, L=34868996800en_HK

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