The Design Of Principal-Protected, Gold-Linked, Yuan-Dominated Structured Financial Product

With development over 13 years, China’s structured financial products market has experienced a large growth. However, there are still some problems remaining in the products, such as a high degree of homogeneity, lack of transparency of information and losses in principal. In this regard, this paper designs a principal-protected, gold-linked, yuan-dominated structured financial product for the target investors.First of all, this paper summarizes the literatures of structured financial products. Scholars usually use formula of zero coupon bonds or coupon bonds to price the fixed income part, and apply mature formula for option pricing; some scholars point out the option pricing, with the underlying asset of gold, is more complex. In addition, this paper lists 3 kinds of exotic options which are usually used in product design and Monte Carlo simulation method.Second, this paper analyzes the structured financial products market and the gold market. The structured financial products market developed soundly, along with its law system. As of 2015, the change in gold demand is relatively stable, while the gold supply has declined. By analyzing 6 factors, experts forecast a moderately increase in gold price in 2016.Third, this paper establishes the product design scheme. This paper illustrates the concept of the product, targets the specific investor, and introduces the product specification and risk disclosure letter. Next, this paper designs the provision of fixed income securities. Based on the prediction of the underlying asset price, this paper designs a portfolio of 3 forward starting digital calls, it adjusts parameters of the option portfolio to find the appropriate ones, considering the risk and return of the product. Then, sensitivity analysis on the product value was studied by changing the price and parameters of the O-U process.Finally, this paper analyzes the attributes of the product. Through the comparison of 8 typical domestic and foreign structured products with the products designed in this paper, it indicates that the product designed has the advantages of transparent information, simple structure and flexible design. Meanwhile, the shortcomings of this product are reflected in the obscurity of participation rate, risk exposure and opportunity loss. Further, this paper makes a summary for the process of the design.