[R-SIG-Finance] Valuation of FID
Brian G. Peterson
br|@n @end|ng |rom br@verock@com
Mon Jun 22 14:44:34 CEST 2020
This sounds more like a swap contract than a bond. The principal is
some quantity of S&P (futures, index value* some initial capital,
something).
Perhaps look at pricing swaps.
On Sun, 2020-06-21 at 23:16 +0300, Eric Berger wrote:
> Hi Christofer,For this instrument its value today would be the sum of
> the presentvalue (pv) of its coupons and the pv of its redemption
> value.You have not specified how the redemption value is determined,
> so Iwon't deal with it. Regarding the coupons, you also did not say
> therate of the coupon, so let's say that is fixed, say at C (e.g.
> C=3%).Each coupon appears to be C x (Avg Value of the Index), which
> seems tobe like holding C of an Average Rate Option (with a zero
> strikeprice), also called an Average Price option (in this case an
> AveragePrice Call). Since each coupon is a position in such an
> option, theset of coupons is a portfolio of Average Price Calls. Hull
> and Whitediscuss valuation for such options, including a reference to
> Kemna andVorst (1990) who treated the case when the average is
> calculated as ageometric average and the option is European.
> Hopefully this provides enough clues for you to take it from here.
> Best,Eric
> On Sun, Jun 21, 2020 at 10:47 PM Christofer Bogaso<
> bogaso.christofer using gmail.com> wrote:
> > Hi,
> > I had placed this question in some other forums, however failed
> > togarner sufficient information till date. Presenting the same
> > herehoping to get some insightful ideas from experts here.
> > Typically in a Bond the Principal is constant over it's life.
> > HoweverI have come across a Bond whose principal is variable, say,
> > average ofS&P quote for the last one month and coupon is paid based
> > on that,coupon rate being constant. I was looking for some idea how
> > such bondcan be priced?
> > Any idea will be highly appreciated.
> > Thanks and regards,
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Brian
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