TITLE:
Structured Financial Product Designing
AUTHORS:
Huayue Zhang, Jingwen Wang
KEYWORDS:
Income Certificate, Shark Fin Options, Martingale Pricing, Monte Carlo Simulation
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.11 No.2,
February
28,
2023
ABSTRACT: Composed of fixed income securities and derivatives, structured financial products have received great popularity in China nowadays, and the income certificate issued by securities companies is one of them. This paper designs a 30-day floating capital protected income certificate with European shark fin option embedded, and prices it through martingale pricing as well as Monte Carlo simulation. Based on the pricing results, this product allows issuers to borrow at a rate of ?0.08% and provides investors with an average annualized return of 1.99%, which is profitable for both issuers and investors. Additionally, this paper also talks about the potential risks through sensitivity analysis and gives a hedging strategy for the issuer.