Two Pricing Problems In Equity Division Reform Of Listed Companies

A new fair institutional basis is being set up in China's capital market so as to get a prosperous future through the equity division reform of listed companies. In order to solve the problem of the split of shares, most non-circulated share holders transfer part of their shares to the circulated share holders. And in some cases, the non-circulated share holders add warrants into the whole transfer plan. In this paper, the main topic is how to price the non-circulated share and warrants.In chapter three each econometric model on non-circulated share pricing is studied to find out its value and limitation. On the base of above analysis, we get the transfer rate function which indicates the relation between transfer rate and illiquidity discount. This model shows that the amount of share to transfer is decided by capital structure and the illiquidity discount. Then the mean of illiquidity discount of Chinese listed companies has been estimated. In the end this model proves reasonable by market data.Problem in chapter four is warrant pricing. Bao Steel warrant, the first warrant in this reform, can be priced by the Black-Scholes formula. At first we obtain estimate of no risk interest rate and annual volatility of the underlying asset. Then we calculate Bao Steel warrant's value. In the whole time to expiration the market price is rather higher than value. The special trade roles have made the Black-Scholes formula less applicable.In the finality, the equity division reform is evaluated. In this reform listed companies have an opportunity to increase their value and the former circulated share holders obtain more equity and new financial derivatives and trade roles have been introduced into Chinese market. The capital market is enjoying a boom. But the research result of above pricing problems also indicates that non-circulated share holders have gotten the bigger part of the value added.