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greghm
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Posts: 17
Joined: July 14th, 2002, 3:00 am

TARN - Target redemption note

September 18th, 2007, 2:37 pm

Hi,I have made a search and read the difference threads about TARNs in here. I have a question regarding the hedging of a TARN.Let s say you have this product:______________________________________________________Maturity: 5 YTARGET: 8%periodicity: annualCp[0]: 5 %Cp : Max([Si/S0-1] ; 0)Si : Price at time i of Asset SSo product is redeemed at Par when Sum of C reaches TARGET._____________________________________________________My understanding is that it s a sum of several calls on asset S plus the option that provide the redemption.How do you decompose this properly ?how do you hedge that ?Thanks in advance