The Analysis On The Pricing Of Structured Equity-linked Financial Products

With the development of national economy, and the opened-up of the domesticfinancial industry, the competition among commercial banks is intense. The business ofcommercial bank develops from the traditional deposit and loan business to theintermediate business. The structured financial products become more popular because ofthe flexible design. It allows people to participate the high risk investment, with theguarantee for all or part of the principal. The proportion of equity-linked structuredfinancial products is the largest in the structured financial products. So, it has theimportant theory and the practical significance on researching for the pricing of theequity-linked structured financial products.China scholars focus the research on the theory of the design and the issuance. butnot attach importance to the pricing for the equity-linked structured financial products.In this paper, I tried to analyze the pricing of the equity-linked structured financialproducts. I divide it into two parts by using of financial engineering theory, one part isfixed income bonds, another part is the options section. For the fixed income bonds, I usethe discounted cash flow method to price them, for the option, I use the Monte Carlosimulation because of its path-depended which makes them could not be decomposed intosimple certain option formula.The price of the option depends on the fluctuation of the stock price. In the study ofthe volatility of the stock price process, I compare the historical volatility model and theGARCH model with the index analysis method. According to the fluctuation of stockprice volatility, aggregation, and persistent, I adopt the GARCH (p, q) model to describethe stock price volatility and use the maximum likelihood method for parameterestimation.For the specific financial product, it’s profit is reflected by more than one stock. Thecorrelation of the stock price fluctuations is different at the different time. I take a DCC-GARCH model to describe the volatility of stock price.Finally,I use the sensitivity analysis to analysis the influence of the risk free rate andthe product period on the equity linked structured products value.I compare thetheoretical value and actual value of the equity linked structured financial products,whichconvenient the investors to make decisions.