An accurate algorithm for the valuation of the capped and path-dependent structured products: The case of principal-protected notes

This paper expands the work by Brennan and Schwartz [1] to develop a model of structured products, principal-protected notes with path dependence, and proposes a closed-form approximation by means of Vorst [11] for the valuation of the notes. The numerical results indicate that this analytic approximation solution has higher accuracy than lattice models (the binomial tree model and the implicit finite difference model) using Control Varite Monte Carlo simulation as a benchmark.