The Pricing Of Interest Rate Linked Structured Financial Products

Interest rate-linked structured products, be called for short interest rate structuredproducts, it is afinancial product and its value dependent on the reference interest ratechanges. Interest rate structured products is extremely important financial derivatives,and also one of the important interest rate derivatives. In view of all financialtransactions are faced with interest rate risk, interest rate derivatives is a common toolof control and management of interest rate risk, so reasonable pricing of interest ratederivatives is a very important issue. As we all know, the development of financialmarkets in China started relatively late, has not yet exist in the form of a separateinterest rate derivatives on financial markets, interest rate derivativesexist,principally,as interest rate linked structured products, such as interval cumulative,one-way floating Constant Maturity Swap-linked structured and trigger interest ratelinked products. Therefore, step by step with the market-oriented interest rate andinterest rate products and constantly enrich, the study of the pricing of interest ratederivatives will be more and more important. In recent years, Chinese scholars havestarted to pay attention and learn from foreign research interest rate-linked structuredproduct pricing, and have a certain amount of research. However, research is still notdeep enough, especially in the pricing of interest rate-linked products, which stillremains at a relatively shallow stage. Therefore, on the basis of existing literature, thisthesis try to do some Development research in the pricing of interest rate structuredfinancial products linked to a different interest rate reference interval.Firstly, the paper outlines the theory of the interest rate structured products,including: product classification and characterization, the course of the developmentand current status of the interest rate structured products;depth and detailed analysisinterest rate structured products pricing theory and induction mainly related to interestrate, which contentequilibrium model, arbitrage model and the market model pricingmethod; At last empirical analysis of the pricing of interest rate structured products.Empirical research part, select three of the more common type of interestrate-linked products: Trigger Interval, cumulative and reverse floating product pricing Study.(a) issued by the Bank of Beijing "worry" series of RMB3months Shibor linkedto the pricing of financial products triggered, the income of the product depends on thereference rate is a single point, also said that only when the product is linked referencerate set interest point is reached, the product to generate revenue;(b) linked to thecumulative rate of Standard Chartered Bank issued a range of deposit products to studythe range of cumulative pricing, the product gains the reference rate is dependent on aninterval, also said that only when the products linked to the reference rate set interestrates ranged from products that generate revenue. Articles selected investment period isMarch19,2009June19,2009, a total of90days, on this basis, the LIBOR marketmodel as a benchmark, the use of tools such as MATLAB and Excel programming;(c)selected ABN AMRO Bank (ABN Amro),12world-renowned banks or financialinstitutions reverse floating object to study the pricing of floating product, the income ofthese products depends on the reference rate is a one-way divergence, said, only whenproducts linked to the reference rate exceeded a set interest rate boundary, to generaterevenue. The paper selected for the March2009issue of a reverse floating rate linkedproducts, the product for a period of5years, subject to three month U.S. dollar Libor,the BDT model on this basis, the use of tools such as MATLAB combined with Itotheorem and the introduction of time-varying volatility BDT model, built underStochastic Volatility the BDT model of interest rates binary tree, the reverse floatingrate linked to product pricing.In summary, on the basis of a comprehensive survey of product pricing interestrate derivatives pricing of interest rate-linked structured products to do a more in-depthstudy, taking into account time-varying volatility, the dynamic reference rate range,theory and practice always, in the course of the study on the actual product objects toexplore the pricing of interest rate structured products. Effect from the empirical pointof view, the three product pricing linked to a different interest rate reference intervalresults show that the interest rate structured products linked to a different interest ratereference interval publishers’ prices to some extent, been underestimated, investors needto carefully consider.