The Study Of Financial Products Innovation Based On Contest Theory

As the core of modern economics, finance plays a important role in optimizing the allocation of resources, promoting economic and society, strenghtening the politics. Financial products is an efficent tool for the flow of capital, helping finance getting into the substance entity and doing a lot among the area of investment or fund-raising. Especially with the economic revolution and internet knowledge going on deeply nowdays, all kinds of financial products innovation are emerging, which promoting the speed of capital flowing. So financial products innovation is called the engine of the financial system.But everything has two sides. Financial products innovation is also presenting some destructive features. The recent financial crisis is a example. During this period, adjustable-rate mortgages, assets securitization and new bookkeeping methods are making a difference in capital markets. Some economists pointed that, the world-wide global or location financial crisis let us know about the nature of modern finance risks. We should learn more about the over-innovation’s damage to this whole system. That is why I write this paper and keep studying its reason. Through this paper, I will list some reasonable restructions which may be helpful to the government’ policy.My paper based on contest theory, studying the intern connactions between financial firms’s innovation behaviors and over-innovation phenomena. This logic can provide a explaning for the financial risks’accumulating.Firstly, this paper will give a description of the contest theory, containing the studying object, basic factors, the contest success function. Base on that, I will keep on digging the standard way of equilibrium analysis. And then, presenting the features of financial products innovation, creating model specification. At last, through the study of innovation model, analysing the contest behaviors among financial firms and the equilibrium results, finding the direct connactions between contest and over-innovation.To help this study, I will choose Trusts as the key component. During last ten years, Trusts have developed very much and lots of Trusts products become the focus of market, which attracts the government’s interests. This paper contains four parts:(1)The former two chapters reviewing the informed research, and telling my "story".(2)The third chapter will introduce the theory part, through this part, readers can know about contest theory’s meaning.(3)The fourth chapter will build a anaylsing model, formulating the whole procedure of financial innovation, which provide us the first-hand data and results.(4)The last chapter will come to an conclusion and advice for the government regulation.