Research On Replication Method Of Structured Products Based On Delta Neutral

Finance is an important part of the economy which provide the blood for the realeconomy. So Finance undoubtedly plays an important role in upgrading the entireeconomic system. The reform of the financial system had already became the eternaltopic between policy makers. Financial intermediary function theory provides animportant way of thinking for policy makers. He thought that there is a financialinnovation spiral in the market. Spontaneous behavior of financial intermediaries can bekeen to explore the needs of the market and provide some products which is unavailablein the market through replication. As long as the policy makers in a timely manner tomarket products,the financial system can be more perfect. The key to financialinnovation spiral is how the financial intermediary replicates these unavailableproducts. Today structured financial products become increasingly because of itsfeatures of guaranteed floating income. Because some structured financial products canbe decomposed portfolio of fixed income securities through financial engineering.Therefore, the purpose of this paper is to investigate the method of replication on theone hand. On the other hand,designing and replication of structured financial productsbased on the method of replication of option is the other purpose. The simulated dataand actual data both illustrate the applicability of delta neutral replication strategy. Butwhen to use in replicate the structured product, the strategy is not entirely applicable.There are many place to improve the replicate method in practice.This paper is divided into six parts. The first part is an introduction and descriptionof research background and literature. The second part is to explain the principles ofreplication and the actual copying process steps of financial intermediaries. On the thirdpart, use the Carlo simulation model to recognize key parameters which impact of thereplication process while the results of the simulation also showed a good replicationresults. The fourth part is to select the three products in order to analysis theapplicability. The fifth part is the application of this article which design structuredfinancial products and relicate. Part six is a summary of the article. Analyze thedeficiencies and make a prospects of this article.