Research On The Product Innovation Of Capital Market And The Risk Management

The supply of financial Products is one of the core research problems in capital market. There is no doubt that its supply power mostly derived from the innovation of the products. Because of different generate path, the innovation chain of the product can be improved rapidly. During the improvement process, the risk in the market has been transferred, accumulated and conducted and the new type of risk is also generated. The innovation of product rich the type of the product of the capital market and improve the function of the capital market, but the innovation can cause the crisis of the market. The eruption of the financial crisis has made people rethink the innovation of the financial products. The hidden risk behind the product innovation chain rupture during the downturn and spread rapidly, which lead to the systemic risk of the market. People now have drawn wide attentions to systemic risk and they use different ways to measure it. But we should not stop the innovation of the financial products because of the financial crisis. The key to the problem is that how to control the finical risk during the innovation of the products. Meanwhile, in the undeveloped capital market, we lack of products innovation. The main development lines in capital market are scale expansion, the product diversification and multiple levels. Thus the innovation of the products is important to the capital market, while the Chinese capital market is somewhat lagging behind in terms of product diversification. Based on the above situation, the product innovation of capital market and the risk management in the process of product innovation are studied in this paper.The horizontal diversification development of capital market is on the premise of product innovation. The mechanism of products innovation is first discussed in this paper. This mechanism is based on the requirement of the equilibrium analysis of financial economics framework. Based on Arrow-Debreu securities markets structure, the completeness of capital market conditions in the real world is given, which refers to the number of independent securities in market returns equals to the number of future uncertainty. The significance of developing options market. In the end of the paper, the ways to improve the product structure are illustrated. By using the completeness analysis method, developing corporate bond market, introducing low-cost trading mechanism and releasing the government supervision policy are raised in this paper. After illustrates the theory of product innovation and its practical significant, a new path way of the product innovation in the capital market is summarized based on the practical development of the capital market.Although the innovation of the products is important, the hidden risk behind can not be neglected. Because of the inherent risks of the financial product itself and the additional and cumulative risk during the process of products derived, each type of the product in the capital market has particular risk character. Thus the risk character of basic products, derivative products and structural products are analyzed in this paper. This paper also illustrates the risk character of securitization products about the housing mortgage loan which play an important role in the subprime mortgage crisis, debt mortgage securitization products, credit default swap and other core financial products. The analyzed results show that the risk conduction and impact among these structural products lead to the occurrence of systemic risk, which affect the normal operation of the market system. Meanwhile, the system of innovation is an open system which has the characterization of dissipative structure. The chain of products innovation is full of risks and these risks are spread to the systematic of the market through different ways. Based on the subprime crisis, the accumulation and transmission process of the financial products innovation and the transmission mechanism of the risk during the crisis from the micro to the macro level are discussed in this paper. The fact proved that the transmission mechanism is a process of entropy accumulation system.The excessive innovation leads to the market crisis, then the early warning of systematic risk become people’s focus. Since the market price is a dominant signal during the process of products trade, some risk information can be extracted during products trading process. Based on the risk-neutral hypothesis of assets price, ways of extracting the probability of default from stock and debenture price are introduced in this paper. Meanwhile, by using the basic theory of the entropy process, the information of risk premium and the early warning of market are extracted through forwards and futures prices. Besides the implied volatility, correlation risk and other information are got from the option premium. The above process of information extracting suggests the capital market needs to encourage products innovation. In addition, this paper finds that the ways to measure the systematic risk are from the view of the bank, while the measure of the systematic risk of the capital market should from the perspective of financial products. Thus the risk information extracted from the price of the financial product and the other variables of the risk are chose to build the systematic risk pre-warning index system of the capital market by the paper. In addition, the BP neural network algorithm is used to verify the data.Based on the above analysis, this paper summarizes the practical track of the product innovation of our capital market. Through massive data, we can easily get a conclusion that the product structure of the market is incomplete. Therefore, some functions of the capital market are limited, such as replication such as replication, the maintenance of the value and so on. Thus, the influential factors of the innovation of the product in the capital market are analyzed through the theoretical perspective. Based on those influential factors, a questionnaire is designed. By using the attribute reduction of rough set theory and Rosetta, some key influential factors are found. The analysis results shows that the development of the securities market, the completeness of hierarchical structure, trading rules, the costs of transaction, supervision strength and the regulatory model are the five factors that play an important role in the process of product innovation of our capital market. Based on the presentation of the theory and data analysis, this paper puts forward some constructive suggestions on how to promote the product innovation of our capital market from the development of the corporate bond and derivative market, the improvement of the product innovation rules and the risk supervision these three perspectives.