Analysis and pricing for the callable equity linked securities

Abstract

Equity Linked Securities is the over-the-counter derivative which was introduced in Korea at 2003 and become very popular today. Since ELS are the securities embedded the various stock option, they have various structure according the embedded options. The purposes of our study are to recognize the necessity of the study on the valuation method for various ELS and to find the more effective valuation method. Especially, we introduce the method for Callable ELS including the early redemption option. Callable ELS is explained as the compound option, so it is valued by pricing the series of options. For the more practical valuation, we use the numerical method such as the Finite Difference Method and the Monte Carlo Simulation and compare the results of these and the analytic result. Then we will judge whether the introduced methods are appropriate to the valuation model for the callable ELS.