Valuation of Structured Product

This thesis tries to answer the question of how this type of financial product still remains popular given the fact of their common overpricing. A number of works supported the fact of overpricing of structured products, on which I tried to base my work. After analyses of possible explanations for increasing popularity of these products, the work presents two possible perspectives of explanation of this issue. First- rational model, second - behavioral model. The fact of overpricing in combination with analyzes provided in viewed literature, underlined that the most suitable theory for explanation is behavioral one, given increased number of unsophisticated investors. To support this theoretical basis I represented the model for valuing complex type of barrier rainbow structured note that was issued by VTB- Bank. Given different possible approaches, I analyzed the methodology of valuating and suitable methods for chosen type of product, resulting in Monte Carlo simulation model. The resulting overpricing was unexpectedly high; however, I tried to analyze the reason of these results. With given model for valuation I also examined the sensitivity of different factors that may drive the value of the product, namely time to maturity, correlation between underlying assets, number of assets in the basket as well as overall volatility of these assets.