Factors Of Chinese Warrant Pricing

The purpose of this paper is to study the relations between the real prices and theoretical prices of Chinese stock warrants and analyze the factors that affect Chinese stock warrants according to the present financial situation, and do a forecast of the warrants prices.The study of option-pricing theory has a history of more than one hundred years abroad. The most matured theory of them is the theory induced from the Black-Scholes Model. There are five factors affecting the warrants prices: share prices, time to expiry, volatility, risk-free interest rate and exercise price. Then the model was expanded to build up the warrants pricing equation which considers bonus and dilution effect. This pricing theory was tested in foreign warrant market and forecasted the warrants price behavior accurately.Nevertheless, a bias occurred when the theory predicted the warrants price behavior in Chinese warrant market. This paper chooses three European call options as the samples to work out the daily theoretical price of each one and does a cointegrating test of the theoretical prices and real prices, and arrives to the conclusion that: There is no equilibrium between the theoretical prices and real prices in long time and real price is far higher than theoretical price, which indicates that there are more than the above five factors affected the warrants prices.This thesis analyzes the reasons of bias on the angle of characterization .They are as follows:(1)The assumed conditions are unpractical.(2)The half-baked institution;(3)The number of issued warrants is too small.Finally, it gives the advice to the warrants issue system and second-issue system in the present condition of the market.