Pricing Structured derivatives

Ernie

New Member
Hi guys,

I'm new in the forum. I need to price a derivative using Monte Carlo simulation. My derivative has the payoff shown in photo. If at maturity the underlying (an index) is above my strike value, it pays the cap. Otherwise it's payoff follow the performance of the underlying. I also know that the time to maturity is 1 years and 8 months and that it will pay a coupon (8 months from now) of a fixed value (x$). I was thinking about simulating the value of the index at maturity mutiple times, computing the payoffs and pricing my derivative for each simulation. Then i would obtain my final price by computing the mean of all my simulated prices.
My doubts are: which formula can i use to price such derivative? Does this process make sense?

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