Predictive Research Based on Monte-Carlo Simulation for Autocallable Barrier Reverse Convertible
Year: 2025
Type: article
Abstract: Structured notes are complex derivatives that blend features of bonds, options and equity linked securities. The study contributes to academic literature by demonstrating how to apply Monte Carlo simulation to model their payoffs under diverse market scenarios, addressing a gap between theoretical pricing frameworks and real-world product complexity. Based on the closing price of Tesla stock between January 12, 2022 and January 17, 2023, Black Sholes model and Jump Diffusion model are developed to explore the initial and mid risk-neutral price of autocallable barrier reverse convertible structure note. Besides, this paper examines the posterior distribution and convergence of the Jump Diffusion model. Black Sholes model is appropriate for stable market without extreme shocks, while Jump Diffusion model is appropriate for extreme shocks concerned. This study carries some implications for improving pricing and risk management for structured notes, informing trading and hedging strategies and advancing hybrid modeling in quantitative finance for investors.
Author: Jieying Wang
Institution: Chinese University of Hong Kong
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4414145481