fCertificates (version 0.5-4)

ReverseConvertible: Reverse Convertible Certificate valuation using pricing by duplication

Description

values a Reverse Convertible Certificate using pricing by duplication

Usage

ReverseConvertible(S, Cap, Time, r, r_d, sigma, nominal, coupon)

Arguments

S

the asset price, a numeric value.

Cap

the cap, a numeric value.

Time

time to maturity measured in years

r

the annualized rate of interest, a numeric value; e.g. 0.25 means 25% pa.

r_d

the annualized dividend yield, a numeric value; e.g. 0.25 means 25% pa.

sigma

the annualized volatility of the underlying security, a numeric value; e.g. 0.3 means 30% volatility pa.

nominal

nominal value, e.g. 1000 EUR

coupon

annualized coupon rate, e.g. 0.14 means 14% coupon p.a.

Value

the price (scalar or vector) of the Reverse Convertible

Details

Duplication:

• coupon bond with nominal value nominal and coupon coupon
• nominal/Cap short puts with strike price equal to Cap

Also known as:

• Aktienanleihe

Classification according to the SVSP Swiss Derivative Map 2008: Reverse Convertibles (330) Classification according to the SVSP Swiss Derivative Map 2010: Reverse Convertibles (1220)

References

SVSP Swiss Derivative Map http://www.svsp-verband.ch/map/

See Also

similar structures : ReverseConvertiblePlusPro,DiscountCertificate

Examples

##
ReverseConvertible(S=40, Cap=50, Time=1, r=0.045, r_d=0, sigma=0.4, 
  nominal=1000, coupon=0.14)

## payoff diagram
S <- seq(0, 100)
p <- ReverseConvertible(S, Cap=50, Time=1, r=0.045, r_d=0, sigma=0.4, 
  nominal=1000, coupon=0.14)
p2 <- ReverseConvertible(S, Cap=50, Time=0, r=0.045, r_d=0, sigma=0.4, 
  nominal=1000, coupon=0.14)
plot(S, p,  type="l", col="red", xlab="underlying price", 
  ylab="payoff", main="Reverse Convertible")
lines(S, p2, col="blue")
abline(v=50, lty=2, col="gray80")