University of Sussex
Browse

File(s) under permanent embargo

A Bayesian view on autocallable pricing and risk management

journal contribution
posted on 2023-06-10, 04:37 authored by Tommaso Paletta, Radu TunaruRadu Tunaru
In this article, some insights are presented on the risks associated with trading autocallable financial products. This class of structured products survived the Lehman Brothers collapse in 2008 and the sovereign crisis of 2011 but was deeply affected by the emergence of the COVID-19 pandemic in 2020. This article highlights the important role played by dividend risk, which was neglected until 2020 in the derivatives literature on equity structured products. The article also emphasizes that both equity volatility uncertainty and dividend uncertainty play a crucial role in pricing and risk-managing autocallables. The article uses the Black-Scholes model in a Bayesian setup, demonstrating how volatility uncertainty affects the estimation of dividend yield and vice versa.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Derivatives

ISSN

1074-1240

Publisher

Pageant Media US

Issue

5

Volume

29

Page range

40-59

Department affiliated with

  • Accounting and Finance Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2022-09-06

First Compliant Deposit (FCD) Date

2022-09-06

Usage metrics

    University of Sussex (Publications)

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC