10.4225/03/59377a868d57b
Easton, Stephen A.
Stephen A.
Easton
Valuing Bonds with Embedded Average Price Options
Monash University
2017
1959.1/35578
1996
Bonds
Monte Carlo Simulation
monash:6834
Average price options
2017-06-07 04:01:09
Journal contribution
https://bridges.monash.edu/articles/journal_contribution/Valuing_Bonds_with_Embedded_Average_Price_Options/5084959
Average price options are based on the average (either arithmetic or geometric) price of the underlying asset during an option's life. Recently, Australia's largest private bank, the National Australia Bank, and the regional Metway Bank, have issued bonds that contain embedded arithmetic average share index options. The purpose of this paper is to value these options using Monte Carlo simulation, and then to value the bonds themselves. Using a wide range of estimates of the parameters that determine the values of these bonds, it would appear that the fixed-term deposits offered by these same banks represent more profitable investments.