Modular Design Of Financial Products Based On Risk Prevention

Finance is the core of modern economy. It is of great importance to prevent and eliminate the financial risk. Financial innovation is main drive of the financial development, and the design of financial products is the core of financial innovation. As a double-edged sword, financial innovation can be used to avoid risk on one hand, but it also may bring new risk on the other hand.This thesis restructured the designing system of financial products through the modular approach so as to reduce the current financial risk. This article concluded the weaknesses of the traditional mode to design financial products, namely the designing periodicity is too long; the designing process is ossified, isolated and not to be repeated and the information and knowledge can not be shared, etc. These weaknesses cause the risks of financial structure, financial organization, financial market and financial supervision. This thesis holds the opinion that it is objectively urgent to develop a new scientific system of product designing. Modularity is the methodology, which becomes increasingly popular in recent years to solve the complicated systemic problems of adaptability. And it has been proved effective in its application in many areas. Simultaneously, finance is also an increasingly complicated economic system, and financial system has the characteristics of modularity itself. Modular approach has been used in the financial area by some scholars. However, no scholar in China has yet talked about using the modular approach in financial product design to solve financial risk problems.The paper then put forward its own innovation, namely the designing of financial products should be under the guidance of modularity theory, and relevant countermeasures as well as suggestions. In this part, this paper first revealed that the essential of financial system is the modular system with financial products as its core and there are five categories of participants related to financial products, the creator, the demander, the supplier, the organizer and the supervisor. Then, the paper creatively brought forward that the financial system could evolve into the modular system formed by the two-dimensional (horizontal and vertical) network based on the modular designing of financial products. The horizontal network of financial system is the multi-level network composed by modular financial products, while the vertical network is the designing rule system, which was established because the modularization of financial products brought the modularization of financial organization. With the modular designing of financial products as the core, the modularization of financial products necessarily brought the modularization of financial organization and financial system. The paper also expounded the required assumptions and the methods to evaluate the effects of modularization. Moreover, it emphasized the advantages of the modular design of financial products through comparing the traditional designing mode of financial products and portfolio theory.The following part came back to the topic of financial risk. It first studied the relation between the financial risk and the modular designing of financial products and held that the way to design financial products with the modular thought as the guidance would make the problem of financial risk become simple and controllable. The modular-designed financial products can avert risk with their great variety and strong pertinence. The financial market in accordance with the modular design will liquidize the risk and thus avert the financial risk too. The competition for the qualification of modular supplier indirectly controls the financial risk. In allusion to the four kinds of financial risk resulted from the traditional desigining mode of financial products, this paper studied how the established modular designing system of financial products governed the risk through the conducting route from up to down under the guidance of modular designing rule:The perfection of the standards will lower the financial supervising risk in the macro level. The clarification of interface will play an important role in reducing the financial organizing risk and financial market risk in the middle level. The structural rationalization will control the financial structural risk in the micro level. According to these analyses, the paper provided relevant counter-measures and suggestions in the levels of financial system, financial intermediate, financial market and financial structure in the end.Modular design of financial products is a systematic project. Since my knowledge is limited, moreover, the theory has just been put forward and is still in the stage of discussion, this paper is only a preliminary study on this issue and it still needs in-depth study and perfection.