A Study On The Pricing Of The Structured Financial Note

Structured note market is an important component of international financialderivatives market. In 2003, Structured notes which are designed by the combinationof fixed income securities and options emerged in China's markets? RMB andforeign currency financing products issued by Chinese and foreign banks. Productpricing is the most important and at the same time the most difficult problem inderivatives research. Structured note pricing has a very important significance forboth issuers and investors.Compositions and design features of structured notes (which constitute thefoundation of product pricing) are analyzed first in this paper. Then, based on the non-arbitrage balanced principle of financial engineer, the valuation principle, Factorsaffecting pricing, the secondary market pricing, pricing model and technologies ofStructured note are studied in depth respectively.Pricing method of Specified Product is the key and difficult point.International studies on structured note also focused on the individual product pricingmethods. Two gold price linked range trigger foreign currency financing productsissued by BOC and CITIC bank are taken as examples for this study. Based onmodern option pricing theories, employing Tgarch model and Monte Carlo simulation,pricing method, yield distribution characteristics and pricing differential sources ofthe two products are studied respectively.Pricing performance of the structured products in china is another keyquestion being researched in this article. Foreign currency financing products issuedby Bank of China (BOC) and China Everbright Bank (CEB) (2004-2006 intervals) aretaken as examples to analyze the pricing performance of the structured notes inchina's market. By the comparison of the pricing of different types, period anddifferent credit ratings products, liquidity premium, credit spreads, and risk premiumin the pricing of products are showed and analyzed.