Investment Analysis Of The Constructed Notes Based On Volatility Trading

Recently, those financial constructed notes issued by commercial banks, have experienced a high-speeding development. Generally speaking, those instrument not only have provided more investment opportunity for local investors, but also supplied the issuers some new profit, "A Win-Win situation";however it turned out to be not. After some great loss have been reported, investors have enough intuitive to wonder whether these instruments were qualified, and how to properly value those instruments ever seems to be a concern.Among those, there is one kind of instruments which return is determined by the underlying asset's oscillation:interestingly, it claimed that in the future, no matter what the underlying asset price changes, the investors can always collect some return only if the price would fall into a specialized area. But, it turns out to perform badly.In fact, this kind of instruments is volatility trading; but because the issuers tended to refuse to provide enough detail and volatility trading is very complex, we haven't yet known these instrument through, especially, the study for the tools chosen to trading the volatility and the quantified model which used to value the expect return need to be carried further.This paper first summarize former studies concerned about the pricing of the constructed notes and the volatility trading; second, according to the return pattern, classify those instruments and introduce the concept of the volatility trading and trading tools; third, after set three rules of choosing, analysis which tool will be preferred by the issuers, analysis the transformation between the constructed notes and the volatility and the role of the issuers, the author points out that the volatility swaps will be preferred instead of the option portfolios, which is quite different from the former studies, meanwhile, the author find it is impossible for the issuers to realize "full-hedging" in the designing, which is the critical discovery in the former studies. At last, by the Monte Carlo simulation, the author provides the general model to value the constructed notes based on the volatility trading.This paper provides new ideas to study the volatility trading and the constructed notes based on it, helps the ordinary investors to understand those financial instruments and make the proper investment chooses.