On China's Emerging Financial Instruments, Warrants Study

In the beginning of the 20th century, the warrant appeared in the USA. Alongwith the development of financial market, warrant transactions flourished increasingly.In Asia-Pacific area, the warrant has become a popular derivate financial instrument.The first proper warrant once appeared in China was of subscription rights, but thewarrant market closed soon because of inordinate speculation and unsubstantialfunction. In August 22, 2005, Baogang warrant came into the market as a derivate ofthe capital market reformation which aims at resolving stock ownership distribution inChinese stock market. Baogang warrant became the first warrant in our securitiesmarket after 9 years. This paper specifies the warrant's characters, type, operationstrategies, usage, and risk, introduces warrant's development around the world,discusses emphatically warrant's application as a share right incentive measure andconsideration in the reformation about resolving stock ownership distribution,analyzes the particularity of market environment in which Baogang warrant wassituated and stockjobber's behavior under the warrant creation system, also looks intoour current warrant market from intrinsic value, implied volatility, premium rate andturnover rate, comparison between call warrants and put warrants. Besides, this papermakes demonstration analysis on the value of Wugang call warrant by Black-Scholesmode in order to conclude the characters of our warrants market. In the end of thispaper, there are several advices about warrants market.