The Research On The Pricing Of Equity-linked Structured Products With Heterogeneous Beliefs

The equity-linked structured products originally appeared in the United States at the age of 80’s of 20 century. They combine fixed income bond with equity option, the former provides guaranteed income for investors, and the latter can meet the pursuit of high yields to satisfy investors with the high leverage of financial derivatives. The equity-linked structured products provide variety of risk preference to suit investors, and they can be used to hedge risks. Moreover, they contribute significantly enrich and perfect the equity market. With the continuous development and improvement of our financial markets, how to properly price the equity-linked structured products will become an important issue to be conducted. The existing literatures on the pricing of equity-linked structured products mainly based on the assumption that investors have homogeneous beliefs, and it is quite clear that the assumption is far from the truth, and the equilirium price with homogeneous beliefs violates from the actual price. Therefore, this paper is of important significance to research on the pricing of equity-linked structured products with heterogeneous beliefs.The heterogeneous beliefs studied in this paper mainly refer to that the investors may well have different expected prices of the equity-linked structured products because they have priori beliefs based on the assumption that the investors get all the information for free at the same time, and then the heterogeneous beliefs can affect the price formation process of the equity-linked structured products. Firstly, we apply information structure to describe the heterogeneous beliefs studied in this paper and make an analysis of the equity prices, and the results show that the heterogeneous beliefs of investors should not be overlooked in the equity price formation pro cess. And then we introduce the heterogeneous beliefs into the equity option pricing mode to get the value range of the equity option by the Choquet expectation and Choquet pricing theory, and the range increases with the increase of heterogeneous beliefs. Finally, we get the value range of the equity-linked structured products by using structure pricing model based on fixed income bond pricing and equity option pricing. The work in this paper is of important value to the pricing of structured products and financial asset pricing with heterogeneous beliefs.This paper selects the bullish product linked Tongrentang(600085) as our study sample to do the case study analysis, which is an equity-linked structured product issued by China Merchants Bank in March 2014. The analysis shows that the range of this equity-linked structured product increases with the increase of heterogeneous beliefs. To be more specific, with the increase of heterogeneous beliefs, the ceiling of the price range showed a general upward trend with an increase growth, but the floor of the price range showed a general downward trend with a decrease growth.