A Study On Warrant Pricing In Chinese Security Market

The healthy development of warrant markets depends on the clear understanding of the theory value of warrants. The pricing research and empirical research on warrants' theory value also become main focus of financial theory research field and practical activies fields. This paper is written to solve the following problems: (1)based on the careful review of the warrant pricng theories' development process, and taking into account of Chines listd companies' special capital structure, to make systematic research of warrants' pricng moedels and methods; (2) to evaluate the performance of warrants pricng based on these models, and find our the most suitable warrants pricing model, and the criterion for pricing model selection; (3) through the empical study to probe the warrant pricng effective factors and its working rules; (4) from the investors point of views to research the underlying causes of price bubble in Chinese warrant market, and using high frequence data to make basic research of warrant market miro-structure.The objective of this paper is to study the aboving issues, aiming to find out some significant rules, which will improve the warrant market participant' recognization of warrant and can give some helpful adivice for Chinese warrant market healthy and quick devlopement.At present, the test of validity of warrats pricng model is still at the stage of Black-Scholes model in China. The main innovation of this paper is to firstly systematicly test the performance of five most important warrants pring models including Black-Scholes model, Black-Scholes model adjusted for dilution effect, Cox square roots model, H-W stochastic variance model, Merton jumping diffusion model and Monte Carlo method in Chinse warrant markets. From the above empirical test, this paper finds out the most suitable warrant valuation model in China, ascertains the definite pricing errors in overall terms in Chinse warrant markets, and takes forwards some basic rules for warrants models seclection. At the end of this paper, the Matlab programes for warrant valuaition are also given for reference.In addition, the major work and findings of this paper are as follows. In the light of empirical test of relationship of warrant valuation models' pricing errors and market features both of warrants and its underlying stock, this paper finds out the main effective faotors of the models valuation accurace, which can give some useful adivace for forcasting the models pricing errors, and improving models' pricing accurance.This paper puts forward a warrant valuation model in the consideration of price bubble, riskpremium and parameters estimation errors by the investor utlity maximization and market clearing, and brings forwad using a autoregressive distributed lag mode with GARCH (1, 1) to illustrate the warrans price movemet in China.From the point of investor's behaviors, this paper uses the "resale option theory" to study the The Mechanism of the Formation of warrant market, and finds out the reasons that induce the price bubble in Chinse warrant market are large plenty of irrational investors' existence in addition to the lack of short selling mechanision. In the meantime, this paper finds out the asymmetrical positive feedback effect by empirical study in China, which further confirms the existence of a lot of irrational investors and proves that it is suitable to use "resale option theory" to illustrate the price bubble in Chines warrant market.Finnally, the "momentum strategies" performance is tested in Chinese warrant market, which illustrates that although the phenomina of price bubble and positive feedback exist in contrast with the marketeffeciency, but it cann't creat arbitrage opportunity, and points out that the momentum strategies cann't bring the excess investment income in Chines warrant market.