Modeling based on market rates as a way to estimate the price of Chilean fixed- income investment fund shares: linear and non-linear methodologies explained

Authors

Abstract

This study addresses a problem that Chilean stockbrokers must face when - acting as market makers - they have to determine bid and ask prices for local fixed-income investment fund shares. As a solution, a mathematical model is proposed based on a share’s last known net asset value and the daily fluctuation of the reference fixed-income market rate (Central Bank of Chile bonds in 5-year development units - BCU 5). Results obtained show a clear improvement of the proposed model’s outcome when compared to simply using the last information available in the market to determine the share’s price.

Keywords:

Investment funds, Market Maker, Chile