Structure Analysis And Pricing Study Of CNY Structured Product

I did in-depth research on a CNY structured product linked to foreign gold. From theperspective of investors, I used GARCH model to describe the dynamics of CNY goldand exchange rate, and used Monte Carlo simulation method and risk neutral pricingto calculate theoretical price of the structured product. I found the pricing of productis fair. Compared to directly investing in CNY gold, this structured product has higheraverage return and lower volatility. Investing in this product will give up theprobability of getting higher return, but completely eliminate the gold price downwardrisk. From the perspective of the issuer, Delta hedging of this product is analyzed.Simulation results indicate that if the bank issues this structured product at itstheoretical price and delta hedges risks daily, the average profit is negative. Althoughthe average profit is positive if the frequency is adjusted to weekly and monthly, thereis still a large probability to get a negative profit. Thus, asymmetry exists betweeninterests of investors and the issuer in this case. The return of investors is more or lessguaranteed, but the profit for the issuer is much more volatile. For this reason, raisingthe issuing premium is justified to increase the probability of making profit for theissuer, which makes the interests between investors and the issuer balanced.