Does model complexity improve pricing accuracy? The case of CoCos

IF 0.7 4区经济学 Q4 BUSINESS, FINANCE Review of Derivatives Research Pub Date : 2021-05-12 DOI:10.1007/s11147-021-09178-4

Christian Koziol, Sebastian Weitz

引用次数: 2

Abstract

In this study, we analyze whether model complexity improves accuracy of CoCo pricing models. We compare the out-of-sample pricing ability of four models using a broad dataset that contains all CoCos which were issued between January 1, 2013 and May 31, 2016 in euros. The regarded models include the standard model from De Spiegeleer and Schoutens (J Deriv 20:27–36, 2012), a modified version enriched by credit risk, an extended model that accounts for the effective lifetime of the CoCo, and a trading model, solely based on historic market prices but no pricing theory at all. For a normal market environment, the simple trading model provides a higher pricing accuracy than the theory-based models. Under distress, however, a theory-based model with a sufficiently high complexity is required.

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模型复杂性是否提高了定价的准确性?CoCos的案例

在本研究中，我们分析模型复杂性是否提高了CoCo定价模型的准确性。我们使用包含2013年1月1日至2016年5月31日以欧元发行的所有CoCos的广泛数据集比较了四种模型的样本外定价能力。被考虑的模型包括De Spiegeleer和Schoutens的标准模型(J Deriv 20:27-36, 2012)，一个增加了信用风险的修改版本，一个考虑CoCo有效寿命的扩展模型，以及一个完全基于历史市场价格而根本没有定价理论的交易模型。在正常的市场环境下，简单交易模型比基于理论的模型具有更高的定价准确性。然而，在困境中，需要一个具有足够高复杂性的理论模型。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Review of Derivatives Research Multiple-

CiteScore

1.40

自引率

0.00%

发文量

期刊介绍： The proliferation of derivative assets during the past two decades is unprecedented. With this growth in derivatives comes the need for financial institutions, institutional investors, and corporations to use sophisticated quantitative techniques to take full advantage of the spectrum of these new financial instruments. Academic research has significantly contributed to our understanding of derivative assets and markets. The growth of derivative asset markets has been accompanied by a commensurate growth in the volume of scientific research. The Review of Derivatives Research provides an international forum for researchers involved in the general areas of derivative assets. The Review publishes high-quality articles dealing with the pricing and hedging of derivative assets on any underlying asset (commodity, interest rate, currency, equity, real estate, traded or non-traded, etc.). Specific topics include but are not limited to: econometric analyses of derivative markets (efficiency, anomalies, performance, etc.) analysis of swap markets market microstructure and volatility issues regulatory and taxation issues credit risk new areas of applications such as corporate finance (capital budgeting, debt innovations), international trade (tariffs and quotas), banking and insurance (embedded options, asset-liability management) risk-sharing issues and the design of optimal derivative securities risk management, management and control valuation and analysis of the options embedded in capital projects valuation and hedging of exotic options new areas for further development (i.e. natural resources, environmental economics. The Review has a double-blind refereeing process. In contrast to the delays in the decision making and publication processes of many current journals, the Review will provide authors with an initial decision within nine weeks of receipt of the manuscript and a goal of publication within six months after acceptance. Finally, a section of the journal is available for rapid publication on `hot'' issues in the market, small technical pieces, and timely essays related to pending legislation and policy. Officially cited as: Rev Deriv Res

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