The Design, Pricing And Hedging Of Two Kinds Of Structured Products Linked Up With CSI 300

In this essay, I’ve designed two kinds of structured products linked up with CSI 300. One is ‘Double Sharkfin’, the other is ‘Range Accrual’. Double Sharkfin is suitable for investors who expect a higher future volatility of index, while Range Accrual is suitable for investors who expect a lower future volatility of index.When solving the pricing problem of Double Sharkfin Option, I first try to solve the pricing of Call Sharkfin and Put Sharkfin. Decomposition method can be easily used to solve the pricing of Call Sharkfin and Put Sharkfin, but not suitable for Double Sharkfin. To solve the problem, I used PDE method, in which I apply stochastic volatility under Heston Model to my theoretical pricing and derive the PDE for the Double Sharkfin. When solving the pricing problem of Range Accrual Option, I use Girsanov Theorem and Merton’s Model. By decomposing the Range Accrual Option into several Range Digital Options, I can calculate the price of Range Accrual Option which is the accumulation of those Range Digital Options with different maturity.With regard to the issuing and execution of the structured products, I establish an allocation method which is to separate the raised funds into option fee part and fixed income part. The option fee part is used to hedge the risk through the index future market, and the fixed income part is invested in the fixed income market to ensure that at the maturity date this part can equal to the original raised funds.With regard to the hedging of the structured products, I choose CSI 300 future as the tool. I calculate the Delta of exotic options by Monte Carlo Simulation under historical data. When doing the sensitivity analysis, I find that when close to the maturity or approaching the barriers, Greeks of the exotic option change rapidly. According to these phenomena, I develop three methods to improve the hedging profitability which are technical analysis, extrapolation of barriers when close to the barriers, and enhancement of hedging frequency when close to the maturity.