Research On The Pricing Theory Of Warrant In Our Country

Warrant is a tool of financial innovation rooted from America, which has developed fast in China these years and has become an important tackle for investors. Warrant's coming out is the result of shareholder structure reform and financial innovation in the security market of our country. It has provided the less lose function to investors when they have warrants and stocks.On August 25,2005, Baogang warrant came into circulation. The new financial derivative becomes the focus of the market again. Its price has also experienced large fluctuations. Black-Scholes model has given European option pricing formula, whose important assumptions are that the stock return series are normally distributed, no autocorrelated and the volatility is a constant. However, more and more empirical results show that the stock return series exist significantly high kurtosis and fat-tailed, which is generally difficult to describe the normal distrition, and the volatility has variablitity and long memory characteristics. Therefore, relaxtions of no autocorrelation and constant volatility are important for the study of warrant pricing.In this paper,we use Black-Scholes model, fractional Black-Scholes model, GARCH-M model, FIGARCH-M model to do some empirical researches in the warrant market. We selected changdian warrant, angang warrant and guodian warrant for study. Then we use the four models to price them, make error correction models and forcast the future prices in 30 days separately. The results show that GARCH-M and FIGARCH-M models give good performance but they are not stable. Because there exists a threshold for the initial volatility when we use the Montel Carlo simulation method. If the initial volatility is more than the threshold, the GARCH-M and FIGARCH-M models even perform worse than the Black-Scholes model.Through the term structure diagram of threshold, we find that GARCH-M model diagram shows a U-threshold curve, the longer the maturity,the flatter the curve. The FIGARCH-M model diagram is relatively more flatter. This paper also proposes a new forecasting model for implied volatility, whose stability and accuracy are relatively higher. Finally we analyze the reasons for the differences between theoretical price and the market price and make reasonable suggestions to the security market.