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Gap Premium Pricing in Leveraged Exchange Traded Notes
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesisAlternative title
Prissättning av gappremier i högriskcertifikat (Swedish)
Abstract [en]

Exchange traded notes have recently seen a surge in popularity. Investors are pouring cash into these debt securities that track various underlying assets. Riskier leveraged exchange traded notes replicate the daily return of the underlying asset multiplied by a lever. Investors pay various fees for holding these securities, many of which are obscure and hidden. The study has researched what hedging fees an underwriter should charge investors. The study has produced two models for pricing these hedging fees: one using insurance pricing based on historical losses and another using arbitrage pricing based on the Black- Scholes model. The models have been used to price leveraged exchange traded notes with a lever of 15 tracking the OMXS30 as the underlying asset, showing that all underwriters but one are within a reasonable price range. A discussion concerning investors risk taking from a behavioral finance perspective and its connection to leveraged exchange traded notes is also included.

Abstract [sv]

Det har skett en stor ökning i handeln av börshandlade certifikat de senaste åren. Investerare köper certifikaten från en bank och certifikaten följer utvecklingen av en underliggande tillgång. Högriskcertifikat ger investeraren exponering mot mer risk genom att applicera en hävstång på investeringen. De betalar alltså ut den dagliga avkastningen av den underliggande multiplicerat med en hävstång. När investerare investerar i högriskcertifikat betalar de många olika avgifter, många av dem dolda och svåra att beräkna. Särskilt de avgifter som banker tar för att täcka sina hedging-kostnader har undersökts i detta arbete.  Undersökningen har lett till två modeller. Den första prissätter avgiften som en försäkring där historiska förluster används och den andra använder arbitrage argument baserat på Black-Scholes-modellen. Modellerna har använts för att prissätta hedging-kostnaderna för högriskcertifikat med hävstång X15 och OMX30 som underliggande tillgång. De visar att alla banker utom en ligger inom ett rimligt intervall med sina avgifter. En diskussion om vilka risker investerare tar med perspektiv från beteendeekonomin och deras koppling till högriskcertifikat avslutar arbetet. 

Place, publisher, year, edition, pages
2016.
Series
TRITA-MAT-K, 2016:07
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-189005OAI: oai:DiVA.org:kth-189005DiVA: diva2:942659
Subject / course
Applied Mathematical Analysis
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Supervisors
Examiners
Available from: 2016-06-26 Created: 2016-06-26 Last updated: 2016-06-26Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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