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Generic Cancellable Note Analytics

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  • Xiao, Tim

Abstract

Many financial derivative products have cancellation provision. They usually have a regular leg and a cancellation leg. The cancellation leg can cancel the regular leg when a cancellation event occurs. This paper presents a generic model for pricing cancellable derivatives. It computes the cancellation probability, fair value, and risk of a cancellable note.

Suggested Citation

  • Xiao, Tim, 2022. "Generic Cancellable Note Analytics," EconStor Preprints 262367, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:262367
    as

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    File URL: https://www.econstor.eu/bitstream/10419/262367/1/cancellationDerivatives.pdf
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    References listed on IDEAS

    as
    1. Bianca Hilberink & L.C.G. Rogers, 2002. "Optimal capital structure and endogenous default," Finance and Stochastics, Springer, vol. 6(2), pages 237-263.
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    4. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
    5. Alan Brace & Dariusz G¸atarek & Marek Musiela, 1997. "The Market Model of Interest Rate Dynamics," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 127-155, April.
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    Keywords

    cancellable note; derivative valuation;

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