Warrant Pricing Based On Time Series

This paper introduced a method to price warrants, which takes advantage of time-series calculation of risk-neutral probability and the implied binomial tree combination, taking into account the expected return rates, this paper improves the classical model, research and analysis the warrants pricing in China market.This idea is as follows:taking Shanghai Automotive and its corresponding warrants as an example, based on Stutzer(1996) and relax its assumption that the risk-free rate is known, establish the equation,then construct the implied binomial tree (Rubinstein,1994), according to the character of the implied binomial tree, it can be solved to a conclusion.From the mode and the empirical. results, we got that it is based on the problem that there are a small number of warrants, and this method is suitable in China market.Comparing with the Black-Scholes model and binomial tree model, the error rate of the method constructed is smaller,which has a comparative advantage; taken into.account the expectations of investors,risk-neutral probability calculations are more realistic; paper simplifies the solution process of the implied binomial tree,expands the possibility of the use. However, this model has resulted in the smaller overall error,but larger fluctuations in the value.