A Semi-Analytic Approach To Valuing Auto-Callable Accrual Notes

TL;DR

This paper introduces a semi-analytic method for valuing auto-callable accrual notes with barrier features, extending existing models to include time-dependent parameters and demonstrating its efficiency over Monte Carlo simulations.

Contribution

It presents a novel semi-analytic valuation technique for complex structured products with time-dependent parameters, improving accuracy and computational efficiency.

Findings

Semi-analytic approach outperforms Monte Carlo in precision.

Method effectively handles time-dependent parameters.

Numerical comparisons validate the approach's advantages.

Abstract

We develop a semi-analytic approach to the valuation of auto-callable structures with accrual features subject to barrier conditions. Our approach is based on recent studies of multi-assed binaries, present in the literature. We extend these studies to the case of time-dependent parameters. We compare numerically the semi-analytic approach and the day to day Monte Carlo approach and conclude that the semi-analytic approach is more advantageous for high precision valuation.