Research On Optimization Of One Stock Structured Product Based On Prospect Theory

The emergence of structured products does not last long.Aboard Research focuses on relative pricing modeling on the basis of some strict assumptions,for instance,hypothesis of rational man,which leads to complexity and impracticability of the models and less explanatory power for the increasing investing requirements.With the development of behavioral finance,prospect theory is widely used in financial asset pricing model.Prospect theory holds that compared to rational and optimized decisions,investors tend to be influenced by subjective factors and actual environment,so it is essential for structured products to take risk preferences of investors into consideration while pricing.CMBC product No.104563 will be studied on the aspects of pricing model derivation,sensitivity analysis and optimization.Firstly,with utilization of value function and weighting function,the pricing model is deduced from discounted mathematics expectation of product maturity payment function,of which rationality and advancements are empirically tested,the profitable space also proved with the economics-based perspective.Besides,sensitivity analysis shows that product value fluctuation mainly results from discounted cost,obstacle-hitting probability and risk preferences of investors.At last,pricing dynamic analysis and parameters optimal design are conducted in consideration of price-quantity relationship and publisher's profit maximum.Results of the empirical tests make it convincible that structured product pricing model,based on prospect theory,can guarantee the reasonableness of the products.Combining the pricing model with supply-demand relationship,the optimization of product pricing and parameters contributes to optimizing the product and achieving maximum profit for publishers.