Analysis and pricing of the structured notes focusing on power spread note

Abstract

Structured notes are term used to refer to an index of securities. The scale of Structured notes over 9 trillion won at 2007. Plain vanilla Floating rate notes are simplest Structured notes, it formed 40.1 percent. Power spread notes formed 9.0 percent. The structured note is the security embedded the various bond prices. Especially, power spread note split by simple flouting rate notes and the bonds which have various maturity date. The purpose of our study is to derive the analytic prices of plain dual indexed notes and of power spread notes and to enhance our comprehension. Term structures are useful to explain the market. In this paper, we assume that the market follows the economical assumptions and that the interest rates are normally distributed at a fixed time. The Vasicek model is the one of the best choice on our view. We use Vasicek model for pricing plain dual indexed notes and Power spread note, so we can analyze the structured note from the case studies.