Research On Valuation Of Foreign Exchange Structured Financial Product Driven By Lévy Process

Structured financial product, which is very popular in China these years,combines both fixed income securities’ and financial derivatives’ features. It embedssome kind of financial derivatives into ordinary deposits, connecting with exchangerate or gold, and realizes the depositor’s higher income who only bear a certain risk.As such, structured financial products were created to meet specific needs that cannotbe met from the standardized financial instruments available in the markets.Compared with geometric brownian motion, Lévy Process could describe thecharacteristics of incomplete financial markets more accurately. This paper focused onthe valuation of foreign exchange structured financial products under Lévy Process.In this paper, the foreign exchange rate is modeled as a Lévy Process, so the domesticand foreign martingale measure could be derived under Lévy Process.This thesis introduced the risk neutral pricing theory of Lévy process tocross-currency market, and derived the pricing formula of foreign exchange structuredfinancial product. It also gives the MCMC calibration and numerical simulation ofJPY-USD exchange rate under Kou Process, so the numerical solution of structuredfinancial product could be derived.