Computer Assignment Two

Computer Assignment Two - MAFS5250 - Computational Methods...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
MAFS5250 - Computational Methods for Pricing Structured Products Computer Assignment Two * Work as a group of two. Course instructor: Prof. Y.K. Kwok Pricing of Accumulators Product nature The “accumulator” or “accumulative forward” is a daily accumulated and knock-out structured product linked to the performance of an underlying stock. It can be considered as a portfolio of forward contracts with the “occupation time” feature. The accumulated units of the underlying stock depends on the total excursion time of the stock price staying below the strike price. This leads to an enhanced downside loss. The upside gain is limited by the knock-out feature with an upside barrier. A typical equity-linked accumulator contract obligates an investor to buy a preset number of units of the underlying stock at the strike price X , if the closing stock price on a trading day is higher than X . However, when the stock closes lower than X , the investor has to buy twice the amount of stocks at X on that trading day. Normally, the strike price X is set at a discount to the original spot price S 0 . This explains why the accumulator is also called “discounted stock” among public. On the other hand, the upside proFt from an accumulator contract is capped by an knock-out barrier H which is set about 5% higher than S 0 . A sample contract Underlying Shares SEMBCORP INDUSTRIES LTD Start Date 05 November 2007 ±inal Accumulation Date 03 November 2008 Maturity Date 06 November 2008 Number of Business Days 250 (subject to adjustment if knocked-out) Strike Price $4.7824 Initial Price $5.70 Knock-out Price $6.20 Knock-Out Event : A Knock-Out Event occurs if the o²cial closing price of the Underlying Share on any Scheduled Trading Day is greater than or equal to the Knock-Out Price. Under such event, there will be no further daily accumulation of Shares from that day onward. The aggregate number of shares accumulated will be settled on the Early Termination Date, which is the third business day following the occurrence of Early Termination Event. Shares Accumulation : On each Scheduled Trading Day prior to the occurrence of Early Ter- mination Event, the number of shares accumulated will be 1 when O²cial Closing Price for the day is higher than or equal to the Strike Price; 2 when O²cial Closing Price for the day is lower than the Strike Price. Monthly Settlement Date : The Shares accumulated for each Accumulation Period will be deliv- ered to the investor on the third business day following the end of each monthly Accumulation Period. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Total Number of Shares : Up to the maximum of 500 shares. Accumulation Period and Delivery Schedule : Accumulation Period Number of days Delivery Date 05 Nov 07 to 03 Dec 07 20 06 Dec 07 04 Dec 07 to 02 Jan 08 19 07 Jan 08 03 Jan 08 to 04 Feb 08 23 11 Feb 08 05 Feb 08 to 03 Mar 08 18 06 Mar 08 04 Mar 08 to 02 Apr 08 21 07 Apr 08 03 Apr 08 to 02 May 08 21 07 May 08 05 May 08 to 02 Jun 08 20 05 Jun 08 03 Jun 08 to 02 Jul 08 22
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/01/2012 for the course MATH 5010 taught by Professor D during the Spring '11 term at HKU.

Page1 / 11

Computer Assignment Two - MAFS5250 - Computational Methods...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online