The Design Of Structured Financial Product

The development of banking financial products can not only meet the growing diversified wealth management needs for the majority of investors, but also generate substantial revenue of intermediary business for the commercial banks. Additionally, it provides a good opportunity to change the pattern of over-reliance on the deposit-loan spreads in China's banking industry.However, from the point to view the market as whole, foreign-funded financial institutions still hold the key techniques of design for structured financial products. They complete most of key work like design for many complex structured products in our market, and get abundant profits from the product issuing process accordingly. As for our local commercial banks, on one hand, they work as local distribution channels for products issued by foreign institutions and get relatively small profits, on the other hand, they imitate a number of products issued by foreign institutions, but fail to get widely acceptation by the market. Therefore, China's commercial banks should develop their wealth management business based on our domestic financial markets and follow the path of self-designed for structured financial products in order to cope with future challenges coming from a full opening-up era in finance industry.In this paper, after we get in-depth knowledge in China's financial markets, we design Jin Tai Product by referencing Fund Tong Qing's product structure in order to explore investment opportunities from the discount of traditional closed-end funds. Then, we replicate the payoff of senior and subordinate tranches in Jin Tai Product by portfolio replication with options. We solve the implied volatility of Fund Tong Qing from their current market prices, and then price senior and subordinate tranches in Jin Tai Product analytically with the implied volatility from Tong Qing. Finally, we conduct a comprehensive assessment of risk-reward characteristics through the break-even analysis, product market risk decomposition as well as historical data simulation.