Research On The Pricing Of Financial Products With Gold

In this paper, we study the product which Commercial Bank of China introduced a goldlinked Guaranteed RMB deposit financial products for a period of 37 days in 2013.12.6. If the gold prices reached or exceeded the threshold 1, 410 usd/ ounce during the period, investors will get 37 days of 1.3 % of annual returns. On the contrary, investors will get 37 days of 5.8 % of annual returns. With the continuous development of financial markets, more and more financial products were sold, the scientific quantitative analysis is necessary. In fact, this kind of products is an option with gold price movements. It is an non-standard path Lookback Options.In previous studies, mostly assumes that the gold price follows Geometric Brown Motion. In this paper, we analysis the past 9 nine years(2005-2013) data with the gold’s day highest price,found that in the long term, the price of gold is not obey Geometric Brown Motion. From the charts to see, the price of gold has two regime-switching at least. Usually, we call them “bull”and “bear”.In the third chapter, we divide the data to some groups with 10 days, 20 days and 30 days.Then we estimate the drift and volatility(daily) and volatility(daily)of each group. Finally,We do clustering analysis to drift rate and the volatility. Here we will try to use the Multi regimeswitching model. We will try to find a more suitable grouping method as far as possible. Then we will estimate the transition probability matrix between groups, and thus calculate the intensity of transfer matrix.In the fourth chapter, we will use the three regime-switching model to pricing the product,give the three regime-switching PDES and numerical solution for the product. We found: 1)The greater the volatility of the price of gold, the smaller value of the product. 2)There is a linearly relationship between value of the product and risk-free rate. 3)Conventions highest yields and relatively low risk-free interest rate determines the value of the product. 4)Value of the product depends on the empirical analysis of relevant theoretical valuation parameter estimation, rather than the number of state variables.