A Comprehensive Analysis of Snowball Structured Products: Characteristics, Return Distribution, and Risk Metrics

This study discusses in detail the characteristics, analytical methodology, return distribution and risk metrics of “snowball structure” products. As a complex OTC option product that has gained popularity in the Chinese market in recent years, the core of the Snowball Structured product is that investors sell put options with triggering conditions to brokers in order to realize a “mild bullishness” within a certain range of asset price fluctuations and at the same time obtain downside protection. The paper analyzes the final return distribution of the snowball structure through Geometric Brownian Motion (GBM) and risk-neutral assumptions, pointing out that it essentially provides customers with a short-term limited gain, unlimited loss put option short. In terms of research methodology, this paper then uses the Finite Difference Method (FDM) to calculate the Greek letters of options (e.g., Delta, Gamma, Theta, Vega, Rho) and simulates the price movements of the Shanghai and Shenzhen 300 indices through Monte Carlo simulation methods in order to assess the potential returns and risks of the Snowball product. The results show that the average survival time of Snowball products[1] is about six months, the average probability of elimination is about 73.7%, and the average return is about 5.7%. Also, the paper assessed the potential loss of the products at different confidence levels through VaR analysis.