Korean major banks and companies are currently raising long-term foreign currency denominated funds mainly by bonds rather than by bank loans. Accessible bond markets for the Korean institutions are Global bond market, Yankee bond market, Samurai bond market and Euro-bond market.
US dollar denominated Equity-linked Notes, which are combinations of straight bonds and index options whose payoffs are linked to S&P 500 index, are found eligible as alternative funding instruments for the Korean institutions in the economic and institutional terms.
Monte Carlo simulation, Black-Sholes model and Binomial model are used as pricing methods for Asian, European and American style index options respectively.
Replicating portfolio strategy is suggested as one of the possible hedging methods.
