The Pricing And Design Improvement Of Stock Index-linked Structured Product

As the financial innovation has been prevailing in the recent years,stock index-linked structured products become the focus of many issuers in both the domestic and foreign markets.However,its development is still limited by the academic development and the terms of some relevant policies.This paper aims at improving the design and raising the development potential of the products by analyzing a typical product,ABC HS300 index-linked call spread product.The innovation of this paper lies in the selected running product and the examples given to show how to improve the design,which are meaningful and helpful in the practice.The options embedded in the product are multiple and typical.The underlying stock index,HS300,is also representative.The paper introduces the main terms and the issuance background of the product,and then decomposes the product according to the characteristics of the product's payoff structure.The analysis reveals that a full understanding and effective prejudgment of the underlying asset is necessary when designing the stock-linked structured products.Using the Martingale Pricing method and the Monte Carlo simulation method to price the product,the paper analyzes the sensitivity of the pricing result and discusses the risk management from the issuer's side.The paper finds the theoretical price of the product is slightly higher than the actual issue price.The product discount does not mean that the issuer suffers losses,because the issuer can hedge through bidirectional product issuance.What's more,the greeks of the option part fluctuate when the index price is near the strike price,indicating that the issuer should pay enough attention when managing the risk of product.Besides,product terms are analyzed to optimize the product and some design improvement examples are provided.Some problem in the product design are discovered: the strike price of the binary option in the product is too low and the basic yield is too high,significantly influencing the product's price.The findings of the paper are expected to offer some new thoughts for structured products design.