Research On Theory Of Warrant And Its Applications In China Warrants Market

As a financial derivative product, warrant was introduced in 1992, when China's securities market was newly established. Shortly later on, this product was abandoned for various reasons. Warrant came to the securities market for the second time when the non-tradable shares reform was initiated in 2005. From August 2005 through June 2008, warrants, combined with the various forms of payment from the non-tradable share holders to the tradable share holders, have drawn a wide range of attentions and involvements in securities market. This thesis has been focused on the analysis of warrant from a theoretical and practical perspective.This thesis is composed of five chapters. Chapter one is the introduction. It outlines the practical and academic background of this thesis, brief summarization of the academic research on this subject, and structure of and methodology applied in this thesis.Chapter two focuses on the fundamentals of warrant. Warrant essentially is a kind of option, which allows the holder to buy or sell predetermined asset based on the previously agreed price and date. This leads to the pricing the warrant based on the pricing model of option, including the B-S model and binominal decision tree model. And warrant, as a financial derivative, has always been intensively studied from the perspective of its relation with the targeted assets. The ongoing academic research, however, have not conclusively reached agreement on this relation. In the author's opinion, the relationship between the warrant and the targeted assets are largely determined by the specific phase of the securities market.Chapter three generally describes and analyzes the global warrant market. The first section gives an in-depth analysis of the reason that the warrant market has grown rapidly. The second part of this chapter introduces the main characteristics of warrant as a product and its transaction. Finally, the warrant market in Hong Kong has been used as an example to illustrate the specifics of warrant market and the basic regulatory framework. The warrant market in Hong Kong is extremely important in the sense that this market is one the largest warrant market in the world and its growth can reasonably support the idea that a sound regulatory framework would contribute significantly to the growth of securities market. Therefore, the historical analysis in this respect could also indicate that the warrant market in Hong Kong can be regarded as a model of a positive relationship between the market development and the regulations.Chapter four deals with the analysis of the warrant market development in mainland China. As mentioned above, the development of warrant markets in China can be divided into two separate stages. The first one was in the beginning of the securities market and the purpose of the warrants back then was mainly to meet the needs of refinancing of public companies. The market at that time was mostly characterized with the over speculations and volatile changes of the regulatory policies. Almost ten years later, warrant has been introduced into the securities market for the second time, as one of the methods used in the non-tradable shares reform. The introduction of warrant, from the perspective of the non-tradable shares reform, can be very successful since many tradable share holders have been willing to accept them in exchange of the rights of non-tradable share holders to sell their shares in the stock market.In last chapter, several suggestions on how the warrant market can develop in the future have been tentatively made. Focusing on the future development of warrant market, the author first identified the important difference between the warrant traded on the global market and the warrant introduce in China's securities market. A clearer framework should be established for the development of warrant market, which will operate on its own rather than for the purpose of other considerations. Finally, the efficient operating of the warrant market will be largely determined by the degree to which the securities market has developed and the regulatory policies have been made and executed.