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Simplified Valuation of Single-Payoff Financial Instruments

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  • Carroll, R B
  • Brask, D A

Abstract

Cheung and Chung (1996) presented a set of four basic components that can be used to reconstruct piecewise linear payoff diagrams associated with single-payoff instruments. Arbitrage arguments indicate that this provides a method to value complex financial instruments as the sum of the values of their underlying basic components. We present a modified scheme using two hybrid components which were constructed so that each piecewise linear segment can be replicated independently. This leads to a simple algorithm that is amenable to quick computer implementation. Copyright 1999 by Kluwer Academic Publishers

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  • Carroll, R B & Brask, D A, 1999. "Simplified Valuation of Single-Payoff Financial Instruments," Review of Quantitative Finance and Accounting, Springer, vol. 12(4), pages 383-393, June.
    • Handle: RePEc:kap:rqfnac:v:12:y:1999:i:4:p:383-93
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    Cited by:

    1. Oliver Entrop & Michael McKenzie & Marco Wilkens & Christoph Winkler, 2016. "The performance of individual investors in structured financial products," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 569-604, April.

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