Value Models Of Complex Instruments

摘要

Even as the pioneering Black-Sholes formula for pricing of options, continues to run into accuracy problems, a major new challenge is growing - a need to valuate much more complex, unregulated, often one-of-the-kind and ad-hoc instruments. There is a huge supply of them, limited only by market creativity. Adding or modifying a seemingly minor, fine-print type clause can drastically affect the valuation of many of such instruments in a manner not as clear as in case of regulated instruments, just note callable/putable bonds and swaps. Ideally one would like to have an interactive tool, valuing new instruments and deals as they are negotiated [12]. The following reviews some of the more popular approaches to valuation of complex instruments and illustrates the magnitude of the challenge remaining in such a program.