KIS 채권평가 - Beyond Pricing
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Introduction
Introduction
- KIS Pricing
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Asset Pricing
Asset Pricing
- Bond Pricing
- Alternative Product Pricing
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Fund Evaluation
Fund Evaluation
- Bond Index
- ETF
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Solution
Solution
- Solution Service
- Consulting Service
- Contents Service
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Beyond Pricing
Beyond Pricing
- KIS-Net
- Data Providing
Asset Pricing
ELS/DLS
Introduction
- ELS (Equity-Linked Securities)
- Equity-Linked derivatives securities
- Investment returns are linked to individual stock or equities index
- Securities firms with OTC derivatives licenses are allow to issue the derivatives
- Direction-dependent products account for the largest proportion, with two or more underlying assets
- largest proportion are issued as Equity-Linked Note (ELN), mainly embedded in bonds, which includes warrant forms
| ELS underlying asset | DLS underlying asset |
|---|---|
|
Individual Stock (Samsung Electronic, Hyundai ) |
|
Hi-Five(Step-Down)
Characteristic
- The most representative product that occupies 70 ~ 80% of domestic ELS market
- Periodic opportunities (usually 6 months) for early redemption occurs when the ELS/DLS meets early redemption terms
- If there is no early redemption, it is designed to incur principal loss depending on whether the limit price has been hit from the underlying asset
Types
- Standard type : Periodic opportunities (usually 6 months) for early redemption occurs when the ELS/DLS meets early redemption terms
- Step Down type : Rate of return decreases by stages as expiration date approaches
- Monthly payment type : If the product miss early redemption terms, structure to pay additional coupon under certain conditions every month
- Lizard type: : After issuances, even if the product do not meet the conditions for early redemption until a particular point in time, It is structured to paid out coupon and principal when the underlying asset prices do not fall below the Knock-in Barrier (Lizard Barrier)
Hi-Five(Step-Down) Pay off
European Option
- Call Option : an option for the right to buy a underlying asset at a strike price on a expiration date
- Put Option : an option for the right to sell a underlying asset at a strike price on a expiration date
European option pay off
Barrier Option
Characteristic
Option, which determines the payoff depending on whether the underlying asset has reached a certain level (barrier level) during the period before the expiration of option
Barrier call option pay off
Barrier put option pay off
Pricing Factors
Black-Scholes Model Based Pricing
Characteristic
- It uses mathematical form of pricing formulas and is easy to implement and has excellent accuracy and speed.
- Fast and accurate calculation even when calculating sensitivity ("Greeks": Delta, Gamma, Thera, Vega Rho)
- In the case of a product with a unique option, applicable pricing formulas do not exist.
Applicable
- European, Digital, Barrier, Barrier Digital Option
- Any basic option with pricing formula
- Basic options that can be disassembled to linear equations
Black-Scholes Model, Monte Carlo Simulation Based Pricing
Introduction
- Under the Black-Scholes model, assume that the underlying asset price follows the Geometric Brownian Motion
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- Followings are after Cholesky decomposition and discretization
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- Generate random numbers 𝜀_1 and 𝜀_2 that are independent of one another and Create multiple underlying asset pricing scenarios
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- Price of the product calculated by obtaining the future cash flow from the structure of the product and derive the present values In each scenario
- The theoretical price is calculated by arithmetic mean of the price of a product in each scenarios
Characteristic
- The methodology is applicable in most situations
- By adjusting the number of simulations trade-off between speed and accuracy occurs, but in order to obtain the precise theoretical price, it requires a large number of simulations
- Compared to other numerical methodologies, it is easy to implement and suitable for path Dependent product evaluation.
- It can be applied when underlying assets are 3 or more
- Difficult to calculate accurate sensitivity (Greeks) data
- Time dependent method of pricing, thus it is difficult to apply it to American option, Issuer Callable ELS and etc..
Applicable
Hi-Five, Cliquet, Asian, Lookback and etc. any path-dependent product
