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The design of bank-issued market-indexed certificates of deposit - survey, pricing and empirical test

Author

Listed:
  • Rodrigo Hernández
  • Jorge Brusa
  • Daniel Pu Liu

Abstract

In this paper we make a survey of market-indexed CDs and list 11 factors that must be taken into account in the design of market-indexed CDs. We extend the pricing model developed by Hernandez et al. (2011), which was a non-coupon paying market-indexed CD model, into a model in which the market-indexed CD pays coupons. Moreover, we apply the models developed in Hernandez et al. (2011) to market-indexed CDs to calculate the costs and profits for issuing market-indexed CDs. The results of the empirical tests indicate that the model can estimate the pricing of market-indexed CDs accurately.

Suggested Citation

  • Rodrigo Hernández & Jorge Brusa & Daniel Pu Liu, 2012. "The design of bank-issued market-indexed certificates of deposit - survey, pricing and empirical test," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 3(1), pages 45-60.
    • Handle: RePEc:ids:ijfmkd:v:3:y:2012:i:1:p:45-60
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