A Study On Warrant Pricing On The Basis Of B-S Model

Warrants have been used as an investment, hedging and arbitrage tool by investors in the global securities market. Warrants are introduced again for china's shareholder structure reform in 2005. They are quickly accepted, so market trading is very large, and turnover rise sharply since its introduction which has been the world's top ranking in the amount of warrants trading. Warrant has made tremendous contribution in China. However, there are too many problems in warrant market, such as too high turnover rate, too many speculative activities, and high prices and other phenomena. The causes of the phenomena are many, but the root cause is that warrant prices are unreasonable. So warrant pricing have a very important significance.The paper introduce the basic theory of warrant pricing and influencing factors, and the traditional B-S pricing model, the B-S model considering the dilution effect and GARCH models. On this basis, the paper study China's reality of the warrants for the empirical analysis on the basis of the B-S model, which is adopted fluctuations of prices and the effective degree of deviation, adopted the statistical description and comparative analysis. The results show that actual prices are too high, the time value doesn't decay, and the effective degree of deviation is too large, so warrants prices are unreasonable.For further analysis, the paper finds out that the market system not perfect, imbalance between supply and demand cause highly pricing. And excessive stock market speculation exacerbated excessive deviation. To this end, we enhance investor education. We speed up the short selling mechanism and the market maker system. We speed up the issuance of covered warrants, and improve the distribution system of equity warrants to improve market functions warrants and eliminate fluctuations. On the other hand, improve the quality of investors, strengthen market supervision, and promote rational market behavior in order to facilitate the rationalization of the Warrants, promote steady development of China's securities market.