A Study On The Pricing Of The Equity-linked Structured Products With "Jucaibao" Structured Products For Example

In order to make the pricing of the equity-linked products more systematic, fair and accurate, this paper selected equity-linked product in Chinese market to price and simulate its probability distribution of revenue. This paper aims at providing investors a reasonable mathematical model and calculation method to choose reasonably priced products which match their needs as an investment reference.This paper reviews the theory and practice of the domestic and international equity-linked products, and analyses its development. Based on the analysis and summary of its structure, features, classfication, functions, factors, risks and problems, this paper builds a pricing model of the equity-linked products, and systematically summarized the equity-linked products pricing process: Firstly, analyze and decomposition cash flow of the equity-linked products, split it into the form of "fixed income parts and option parts" and then use Monte Carlo simulation to determine the future cash flows; Secondly, use dynamic interest rate model to determine the interest rate term structure of the product and the discount rate;Thirdly, use the discount rate and the future cash flows to find the theoretical price of the product; Finally, calculate the probability of its revenue distribution and analyze the pricing results. This process is used to price the equity-linked products issued by China Ping An Bank.This paper uses the following methods: using literature analysis to analyze and summary the research of the domestic and international equity-linked products as a pricing theoretical basis; using normative analysis to builds a pricing model and the equity-linked products pricing process; using empirical analysis to price the sample products. In the pricing process,this paper uses large amount of quantitative analysis such as using the Monte-Carlo simulation and the method of Cholesky to decompose the cash flow of sample equity-linked product, using dynamic interest rate model of Black-Derman-Toy and Heath-Jarrow-Morton to determine the discount rate, calculating the theoritical price of the sample equity-linked product and using Monte-Carlo simulation to get the yeild probability distributions.The results show that the theoritical price of the sample products calculated by BDT model is 10443.2, and the one calculated by HJM model is 101660. So this equity-linked product is issued at a discount. The simulated yield is 4%, and the expected yield is 5.372%.Since its probability of low revenue circumstances is small, this equity-linked product is worth investing. Meanwhile, the results also show that the Heath-Jarrow-Morton model is better than Black-Derman-Toy model in simulating the term structure of interest rate. And the pricing results using Heath-Jarrow-Morton model also better match the actual market.