The Warrants Pricing Model Validation

In order to support the reform of the shareholder structure of listed companies,warrants appeared in Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange(SZSE) in the last half-year of 2005. Along with the listing of Baogang JTB1, thereare about 15 warrants in the two stock exchange. Warrant is a primary derivative, butit has profound influence on the security market. Because the warrants operation juststarted in our country, the speculation on the warrants is very serious. At thebeginning, the price of the warrants rises dramatically, even its undulation deviatesfrom its stock price and its value. Behind the exceptionally fluctuation, it is bound tohave profound market reason.The purpose of this thesis is that based on the Black-Scholes pricing-model andBinomial pricing-model, we test their pricing validity using SSE and SZSE data. Thenwe will analyze the difference between real and theoretical price as well as thefluctuation.First, we introduce Black-Scholes pricing-model and Binomial pricing-modelbriefly. In this theory framework, we choose 5 warrants to calculate their theoreticalprice. Then, we compare the real price with theoretical price to test the validity. In thisprocess, we use Average Tracking Difference to discuss the deviation. Furthermore,we will give some policy advices about the warrants operation and market. Finally,we get the conclusion that Black-Scholes pricing-model and Binomial pricing-modelare some effective. However, we should take the premise and the situation of ourstock market into account to avoid the acute and great deviation.