Research / Research Papers

Valuation of Structured Products

Published in The Journal of Alternative Investments, Spring 2014, Vol. 16, No. 4: pp. 71-87.


The market for structured products has grown dramatically in the past decade. Their diversity and complexity has led to the development of many diff erent valuation approaches, and which approach to use to value a given product is not always clear. In this paper we demonstrate and discuss four approaches to valuing structured products: simulation of the linked fi nancial instrument's future values, numerical integration, decomposition, and partial diff erential equation approaches. As an example, we use all four approaches to value a common type of structured product and discuss the virtues and pitfalls of each. These approaches have been practically applied to value 20,000 structured products in our database.

By Geng Deng, Tim Husson, and Craig McCann

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Craig J. McCann