The Warrants Pricing Of Our Ownership Structure

It has been making great improvement in financial market of China over the past two decades, especially in its capital market. At the same time, there are many unsolvable problems in Chinese financial market comparing to the developed financial market, such as: the disputed financial structure, poor financial products, high risk in financial market and lack of tools for eliminating risks. Following the Chinese entry of WTO, it is necessary to open our financial market in order to deal with the opportunities and challenges, meet the requirements of efficient structure of financial market and diversified financial products. In a word, further financial innovations is urgently needed, the most important one of them is warrant. Warrant has heavy impacts on some realistic economic problems such as state-owned shares lessening,corporate governance, to some extent even other financial derivative security such as :convertible bond,stock options . All of them include some warrant characters. Before 1995, there are a few kinds of portfolio with warrant characteristics issued in Chinese stock market, unfortunately they all failed in the end, for example matched-stock warrant. Unrealistic pricing and hyper-speculations are the most important reasons that caused the fail, except the influences of laws and policies at that time. Warrant has functions of price-finding and risk-avoiding, meanwhile it is accompanied by high risk, so we have to deal with it in more rational attitude, analyze it objectively and scientifically, then price it realistically, make all efforts to avoid warrant turn into a hyper-speculated market. It has spent more than 100 years in researching the warrant pricing theory in developed western world, a relatively complete theory system has been set up now which is based on hard works of many scholars. In 1973Black and Scholes developed and set up the warrant pricing equation after discovery of B-S formula, because of its simple formation and relative accuracy, it has been widely used in practices. Since1995 some scholars have researched the pricing theories on warrant, convertible bond, and matched-stock warrant in domestic, but there are two major problems in their research: firstly, these formulas have not canonical system though some mainland scholars have a deep understanding about Chinese financial market, their research output is just a simple summary for experiences without systematic and critical thinking, so it is not a good way to develop the warrant pricing theory in China; secondly, some of them simply cited the foreign theoretical equation regardless of the unique characters of Chinese stock market(compared to mature western stock market, capital market in China has many differences especially heavy percentage of the state-owned shares and corporation-owned shares which can not liquidate in the stock market.). In this case it would be huge variation if the theoretical equation developed in the mature market were directly used in China without any adoptions or adjustments. Basing on well-developed theories in western markets and fully considering the unique characters in Chinese stock market (most shares are not liquidate), this paper will focus on the warrant-pricing theory in China, discuss it in a more systematic way, at last work out a more realistic warrant-pricing equation which is suitable to Chinese stock market. Main aspects of the warrant pricing theory are discussed in this paper:* Discuss and evaluate the different developing stages of the warrant-pricing theory in its history;* Carefully analyze the mechanism of cross-effects between the warrant pricing theory and unique stock structure in Chinese stock market, make the conclusion that the warrant pricing equation need to be adjusted according to the circumstances of Chinese stock market. Strictly adjust the warrant pricing equation, and then describe its* financial applications in exchangeable bond and other aspects. Some further research works should be dedica...