An Analysis of Market-Index Certificates of Deposit 市场指数存款证分析.pdfVIP

Journal of Financial ServicesResearch 4:93-110 (1990) © 1990Kluwer Academic Publishers An Analysis of Market-Index Certificates of Deposit ANDREW H. CHEN Distinguished Professorof Finance, Edwin L. Cox School of Business, Southern Methodist University,Dallas, TX 75275 USA. JOHN W. KENSINGER Assistant Professorof Finance, Collegeand Graduate School of Business, Universityof Texasat Austin, Austin TX 78712-1179 USA. Abstract We analyze the new market-index certificates of deposit (MICDs), which pay variable interest pegged to the performance of the Standard and Poors (SP) 500 stock market index. The pricing formulas as well as the equilibrium relationship between the participation percentages for both the call- and put-type MICDs are derived and discussed. From the implicitvalue of the option component we compute implied standard devia- tions (ISDs) for the market index, and find inconsistenciesin the pricing policies of the recent issuers of MICDs. The terms under which bearversions are being offered are particularly unattractive, and offeringbetter terms would create new opportunities forthe issuers ofMICDs. We also analyzethe issuers risk exposure, and discuss the natural as well as the dynamichedging strategies. In March 1987 Chase Manhattan Bank responded to competition for funds during a long-running bull market on Wall Street by offering market-index certificates of deposit (MICDs), a new product designed to provide investors a means for participating in the stock market while at the same time limiting their risk exposure. These M I C D s are variable-rate certificates of deposit for which the interest rate is contingent upon the performance of a w