An Analysis On The Pricing Of The Structured Products For Banks

With the increasing development in economy and financial markets,the investment assets in domestic residents have been expanded, who havestrong demand for wealth management services. At the same time, theinterest rate liberalization has been moving forward and commercial banksare urgently to transfer from traditional business. In2005, the CBRCpromulgated a series of regulatory documents on commercial banks’wealth management business, which set up a management framework andthe banks’financial products have grown rapidly.This paper is based on the development of the wealth managementmarket and gives an analysis on the banks’ financial products. In regard ofthe research literature, the paper compares theoretical pricing model onstructured financial products, which also gives empirical research usingthe Monte Carlo simulation for the stock index-linked products andsummarizes the status of structured financial products in expectation toprovide a reference for forward research. Structured financial products including fixed income portion andfloating income portion, and its revenue links to the performance of theunderlying assets. The fixed-income portion is similar as deposits orzero-coupon bond while the floating-income portion is like derivatives.Refer to underlying assets; the structured financial products are dividedinto the stock, exchange rates, interest rates, commodities and creditlinked type. This pricing method is based on the decomposition of thevarious parts of the structured products, which evaluates the fixed-incomeportion by the discounted cash flow method and the derivatives portion byreplication method and Monte Carlo simulation. In the analysis onunderlying assets, the paper includes the case of time-varying volatilityusing GARCH Models and concludes that the time-varying volatilityassumptions is better for fitting the path of the underlying asset. Finally,this paper gives suggestions on the development of structured productsfrom designing point of view.The paper is divided into five sections: The first part is theintroduction, which includes the research significance, literature review,frame and method and innovation in this paper. The second part describesthe categories and functions of structured financial products, domesticdevelopment status and business model. The third part is the theoretical pricing model, which includes the discounted cash flow method for fixedincome portion and the option replication, BS model, Monte Carlosimulation for the floating part. Besides, the research completed analysisin heteroscedasticity of the underlying assets by GARCH model. Thefourth part is the empirical research for value of SHSE-SZSE300linkedfinancial products and discuss the differences between the theoreticalvalue and the market price. The fifth part is the outlook for the bankstructured financial products, which includes risk management andregulatory proposals.