An Optimization Approach for Pricing Analysis on a Bank Wealth-Management Equity Structured Product

Abstract

This paper researches on the pricing and design of a certain stock-type structured product. Firstly, a semi-analytic pricing model is deduced by discounting the payoff function of the product. Secondly, the difference between publishers' and investors' required rate of return is explained with market segmentation theory when estimating the pricing model’s parameters, which defines the cost and sale price of a product. Finally, with sensitivity analysis, it is concluded that publishers can increase their profits by extending the due date of the product or publishing it with relatively large asset volatility. The study aims to help publishers make reasonable product design and pricing decisions.

Keywords

• market segmentation
• pricing
• sensitivity analysis
• structured product