Fourir Transformation Pricing Method For Rate-linked Financial Products Based On Shibor Jump Model

Since the Shibor has been officially run from2007, the benchmark position ofShanghai Interbank Offered Rate (Shibor) has been basically established, and it hasgradually become the transmission of monetary policy, and it also has been animportant indicator of changes in market interest rates. Meanwhile, the financialderivative products that are based on Shibor interest rate continue to emerge. Thepricing of a large number of bond trading, deposits, loans, discounting and otherfinancial products is gradually linked with Shibor interest rate. Among them, as a kindof classic financial products, the Shibor-linked triggered structured financial productsare becoming more and more welcome. However, from the view of some relevantliteratures, in the research of pricing of structured financial products, the pricing ofmany financial products is not accurate enough. And there is a gap between the priceand the theoretical value of some products, so it is not conducive to investors to makedecisions. Therefore, the pricing research of triggered structured financial products isnecessary, which will benefit the majority of investors that will invest such productsto make the right investment decisions, which is the significance of this study lies.This study will contribute to China’s commercial banks to further improve self-pricingpower in financial derivatives, so Shibor rates better play a central role in leading andconducting monetary policy interest rates in the financial liberalization andmarket-oriented interest rate reform process in our country.When build the model about the dynamic changes of Shibor, considering thesudden influence of some emergencies, we choose to add the jump key to the CIRmodel in order to bitterly describe the dynamic change process of the Shibor interestrate. On the parameter estimation method of model, we select the Markov chainMonte Carlo (MCMC) methods. About the pricing research of triggered structuredfinancial product, we will divide its value into two part, they are fixed-income sectionand options section. Then about the options section, we choose to use Fouriertransform method to price it. Finally, according to the pricing results obtained, adviseinvestors if it is worthy of being bought.The first chapter is mainly compiled a recent study on the benchmark status ofShibor interest rate, interest rate model, parameter estimation method of model, the pricing of structured financial products and the Fourier Transform Method. Thesecond chapter makes a brief introduction about the theoretical basis that will beinvolved in the article, and then choose CIR-Jump model as our rate model on thestudy of product pricing. The third chapter is the part about the estimation of modelparameters, we use MCMC method and OPENBugs software to specifically estimatethe parameters of the CIR-Jump model. The fourth chapter is the essence part of thispaper. We use the Fourier Transform Method to price the triggered structured interestrate products. The value of the product is divided into two parts, one is fixed-incomeportion, and the other one is the option part. Then calculate their value partly. Thefifth chapter is the empirical part. By combining the results obtained from the formerfour chapters and a specific financial product, use the Matlab software to calculate thetheoretical value of the product. The sixth chapter analyses the research results andshortcomings of this paper, which will let us identify the future research directions.By combining the theoretical and empirical part of this paper, we can draw thefollowing conclusions:1, the benchmark position of Shibor interest rate has beenbasically established, and the Shibor-linked structured financial product is a maintrend of current financial products market.2, when estimate the model parameter,MCMC methods can get a relatively better result. The MCMC method use the thoughtof simulating and iteration, therefore, after a lot of iterations, there is a high accuracyof the results.3, when used to calculate the price of the derivative products, theFourier Transform Method can greatly improve computing speed, so it will be moreeasily to price products. Moreover, in more complex cases, by slightly changing themethod of Fourier Transform Method, we can get Fast Fourier Transform method, andit can further increase computing speed.The main innovation of this article is that the CIR-Jump model, combined withFourier transform method, is applied to price triggered structured financial products.Firstly, the model can better simulate and describe the actual process of changes ininterest rates. Secondly, the Fourier transform method can greatly improve thecomputing speed in pricing products.