Title: Autocall structured products: a case study of Vale S.A.

Authors: Paulo Vitor Jordão Da Gama Silva; Antonio Carlos Figueiredo Pinto; Marcelo Cabus Klotzle

Addresses: Department of Administration IMA (Institute of Management and Administration), Pontifical Catholic University of Rio de Janeiro (PUC-RJ), Rua Marquês de São Vicente, 225, Gávea – Rio de Janeiro, RJ – 22451 – 900 Brazil ' Department of Administration IMA (Institute of Management and Administration), Pontifical Catholic University of Rio de Janeiro (PUC-RJ), Rua Marquês de São Vicente, 225, Gávea – Rio de Janeiro, RJ – 22451 – 900 Brazil ' Department of Administration IMA (Institute of Management and Administration), Pontifical Catholic University of Rio de Janeiro (PUC-RJ), Rua Marquês de São Vicente, 225, Gávea – Rio de Janeiro, RJ – 22451 – 900 Brazil

Abstract: This article analyses the pricing, using autocall mechanisms, of a coupon barrier note issue based on ADRs of Brazil's biggest mining and metals company: Vale S.A. (VALE). The numerical method used was based on a modification of the trinomial tree model with auto-call, barrier and knock-in conditions, and which was modified to calculate present value. This model was shown to be practical and agile for processing the database and handling considerably volatile scenarios and was also validated by the product's actual behaviour, revealing that the product was not financially attractive for maintaining an autocall operation strategy (achieve a gain with the product maturing in the short term and switch to similar products). The aim of this article is to show a new pricing method involving autocall structured products with functioning typologies similar to those of the issue analysed in the present study.

Keywords: financial derivatives; autocall structured products; Vale S.A.; VALE; modified trinomial tree; finite difference method; FDM; coupon barrier note issue; pricing methods; present value.

DOI: 10.1504/IJFMD.2012.053343

International Journal of Financial Markets and Derivatives, 2012 Vol.3 No.1, pp.71 - 90

Received: 20 Oct 2012
Accepted: 19 Feb 2013
Published online: 30 Aug 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article