On Pricing "Ameriabank" CJSC’s Structured Deposi

Abstract

In modern highly volatile international financial markets a critical role in ensuring the solvency of a participant of those markets is employment of adequate mechanisms of protection from market risks. This problem is especially important for banks and participants of financial markets from Armenia, because on the one hand the local market is weakly developed and the securities traded on that market may not match the needs of investors and on the other hand participation in international markets without adequate hedging strategies on opened position can yield to significant losses. In this article an unusual product for Armenian market offered by Ameria Bank is discussed. The product is especially interesting in terms of mathematical modeling and is evaluated as a call/put option. Gold is taken as an underlying asset for the product and using models from financial stochastic calculus the price of the gold is modeled and predicted for the discussed period of time. Then deposits with different maturities and fixed income level are valued as a call/put option. The value of those options represents the required amount necessary for hedging the liability occurred from promising the investor extra income on the top to the fixed.