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A Robust Pricing of Specific Structured Bonds with Coupons

The Journal of Risk Finance, (2014), Vol.15, Is.(3), 234-247

Posted: 7 Aug 2015

See all articles by Anastasios Evgenidis

Anastasios Evgenidis

Central Bank of Ireland

Costas Siriopoulos

Zayed University, College of Business; University of Patras - Business Administration

Date Written: 2014

Abstract

The purpose of this paper is to present an innovative model to evaluate the fair price of a subset of structured products for a hypothetical US structured bond with coupons. Assuming that interest rates are described by the Cox-Ingersoll-Ross process we use an Euler-Maruyama scheme to price structured bonds. The fair value of the bond is robust under any parameter or model misspecification. In addition, a change in the price seems to be more sensitive to long-term yields rather than short-or mid-term yields. Moreover, a slight change in the current structure would have a significant effect on the bond price only during economic expansions.

Keywords: Bond pricing, CIR model, Euler–Maruyama Monte Carlo, Structured bonds

JEL Classification: G12, G17, G2

Suggested Citation

Evgenidis, Anastasios and Siriopoulos, Costas, A Robust Pricing of Specific Structured Bonds with Coupons (2014). The Journal of Risk Finance, (2014), Vol.15, Is.(3), 234-247 , Available at SSRN: https://ssrn.com/abstract=2640592

Anastasios Evgenidis (Contact Author)

Central Bank of Ireland ( email )

Dame street
2
Dublin
Ireland

Costas Siriopoulos

Zayed University, College of Business ( email )

P.O. Box 144534
Abu Dhabi
United Arab Emirates

University of Patras - Business Administration ( email )

Patras
Greece

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