Empirical Research Of Classification Fund’s Pricing And Arbitrage

Classification of the fund is an innovative structured product. It means that in a portfolio, by decomposing the fund’s earnings or net assets, we can get two level or multi-level fund shares that have certain differences in risk and return. Normally, classification of the fund contains two types of child share: low risk share and high risk share. Low risk share enjoys a fixed return, after meeting the provisions earnings of the low risk share, high risk share bears all the losses and gains, so the essence of the classification is that high risk share financing to low risk share.In order to reduce the discount phenomenon of closed-end rating fund, SDIC the UBS Redford classification fund was established in July17,2007, it becomes China’s first classification fund. In recent years, the amount and type of classification fund increase rapidly, and classification of the fund is welcomed by the majority of investors because of its unique design mechanisms. In order to provide investors with some good reference and advice, in this paper, the pricing and arbitrage of fund classification are studied.This paper is divided into five chapters. The first chapter introduces the research background, discusses the classification of fund development situation at home and abroad, and provides research ideas and framework of this paper. The second chapter presents the definition of the classification of fund, intro-duces the design terms and characteristics of the classification of the fund. It mainly includes the classification of fund raising and works, income distribu-tion way, leverage multiples and conversion mechanism. Leverage multiples includes initial leverage and net leverage, conversion mechanism contains ma-turity translation and point conversion. The third chapter presents the classifi-cation of the fund’s pricing and its empirical research. By studying the relevant literature and analyzing the characteristics of the fund’s classification, we can get that the classification of the fund’s nonlinear return makes it imply option-s. Therefore, we can use the Black-Scholes model to calculate its theoretical price. The fourth chapter gives the classification of the fund’s arbitrage way and its empirical analysis.Open-graded fund can use its unique matching con-version mechanism which includes splitting and merging to achieve arbitrage. Because the current classification fund market lacks of short mechanism, so the classification of the fund’s pairs trading strategy based on the theory of cointegration is a prospective study method. After launching shorting mech-anism in the classification of the fund market, the method can provide some reference and suggestions for the investors. The fifth chapter is the conclusion of this paper, it summarizes the full text.