| With China's entry to WTO, China's financial markets has become more open. After April 2,2007 foreign-funded banks in China have the same legal, status with Chinese-funded banks, since then Chinese-funded banks and foreign banks will face competition in a relatively way. In China, the source of commercial banks' profit remain reling on the traditional deposit and loan business, which has been very difficult to compete with foreign banks. So it is necessary to open up new source of profit. China's commercial banks must develop the intermediary business, especially personal financing service, for its high-margin and high-growth.There is a large middle class in China, they want to participate in China's stock market or the global stock market, but because of the restrictions of regulatory and their worries about risk, their will can't be fulfilled.In this case, equity-linked products are suitable for them to invest.In China, the financial market started late, but it has begun to take shape. With its rapid development, many problems have highlighted. For example, the sense of financial product innovation is weak, there isn't unique service concept and specific customer groups in bank system, ect. As an new financial product, equity-linked financial product occupied more than 90% of China's structured financial product market in the bull market between 2006 and 2007. Although people rushed to buy this product, but many of them don't know what exactly equity-linked financial product is, what the characteristics are, what the relationships between equity-linked financial product and stock are. There do exist many problems in the equity-linked financial product market. So, researching on this project has real theoretical and practical meaning.This paper tries to analyze the present situation and the existing problems of China's personal financing market. Through empirical analysis, tries to put forward some practice proposals, which contribute to developing the intermediary business in our banking system..Equity-linked financial product is a combination of bond and stock option. The bond reflects its preserving character, while the stock option reflects its profitability. The pricing of bond mainly uses the discounted cash flow method and the pricing of the stock option mainly uses Monte Carlo simulation.In this paper, I use Monte Carlo simulation to discuss the theoretical price of equity-linked financial product. Through empirical study, we found the conclusion that the theoretical price is less than the issue price, but this premium is reasonable, because equity-linked product is an innovative products, its innovative value must be taken into calculation. Through comparing the risk-return relationship of direct investment in the target stock, the result confirmed that the relationship between risk and return is positive. The result also shows that the return of equity-linked products is smaller than direct investment in stock, but the risk is significantly reduced.Based on the above ideas, this paper consists of the following four parts.PartⅠ:Review previous research results at home and abroad and current developments.PartⅡ:Express the development of personal financing service in China, and the deficiencies of China's current financial market, finally classify the categories of equity-linked products based on the existing financial products in the market.PartⅢ:Analyze the pricing method of equity-linked products. I discuss the pricing method mainly from two aspects:bond pricing, primarily use discounted cash flow method; option pricing is the major focus of equity-linked product pricing. In this paper, the Monte Carlo simulation is used to price the option stock. Finally, take a product issued by Bank of East Asia to carry out the detailed pricing method.PartⅣ:Conclusions and further research directions. The return of equity-linked products, compared to direct investment in the stock market is smaller, but the risk is greatly reduced. |
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