Abstract
The valuation of equity swap under the condition of risk neutral is similar to the forward interest rate swap with the same period. Therefore, its valuation formula is consistent to interest rate swap model in the traditional methods. But it is not the same as in pricing the cross-currency equity swap. The dymanic prices of foreign stock index and exchange rate, and the correlation coefficients between exchange rates and foreign assets also affect the swap rate.
In this paper, we extend Chance and Rich(1998)¡¦s valuation formula of equity swaps, and apply Amin (1991)¡BAmin and Bodurtha(1995)¡BLin(1997)¡¦s dymanic prices of assets in discrete time period. To derive the risk neutral valuation formula of equity swap, it uses the method of transfer probability measure. This study finds the expected return of foreign stock index in the no arbitrage condition, in addition equal to foreign forward interest rate with the same period , must be add a correction term to reflect the exchange rate risk and the transfer of forward martingale measure.
This paper also derives the pricing formula of equity swaptions¡Bcaps¡Bfloors¡Bvariable notional principal and blended equity swap. Finally, we find the volatility of foreign forward interest rate is the most important factor of pricing the swap rate from numerical simulation. And if the correlation of the volatility of exchange rate and foreign stock index¡Bthe correlation of the volatility of exchange rate and foreign forward interest rate are negative, the swap rate will be higher.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0727100-113506 |
| Date | 27 July 2000 |
| Creators | Wang, Ming-chieh |
| Contributors | Shy-long Liao |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | Cholon |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0727100-113506 |
| Rights | unrestricted, Copyright information available at source archive |
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