Pricing of Security Investment Products

Abstract:

Based on Black-Scholes Model, the pricing of SIPs was investigated with PDE method.With the double-factor model,a pricing model for the SIPs was established with an earlier exercise condition according to hedging techniques and Ito Lemma.And the numerical solution was obtained with the difference method.The value of the liquidity was analyzed by comparing the models with or without the early open condition.Finally,a case study was made of Guangda SIP.The roles the model in pricing and its limits were discussed as well.

Key words:security investment products; guarantee clause; early exercise condition; partial differential equation; Black-Scholes model