Research On Warrant Pricing In Chinese Stock Market

This paper did a systematic research on the price of Chinese Warrant after the reform of stock market. Having analyzed the history and mechanism of Warrant Market in China and special view on the wholly theory of warrant pricing, and focus on the aspect of stochastic process as well, this paper used a lot of popular volatility models, such as Random Walking Model, GARCH Models, Models with Jump factors and non-normal Models to study the dynamic behavior of underlying stocks and then used Hong & Lee (2005) nonparametric specification test to compare the model specification errors of different models. Based on the result of volatility estimation, the writer used the Monte-Carlo simulations to price the warrants and compare the pricing results of different models. The pricing results showed that the Warrants in Chinese market are seriously overpriced nowadays. There is also a strong manipulation in the market. The writer studied some possible institutional reasons for such manipulation and proposed some policy suggestions in the end.