Warrant Pricing Of The Domestic Market Research

After the first warrant was traded in the domestic security market, this new financial derivative become the focus of investor's interest, and the price of warrant fluctuated violently. This study research on the warrant pricing on domestic market for the first time. We choose five representative warrants, and pricing them with Black-Scholes model, Jump-Diffusion model and Stochastic volatility model with different volatility estimation methods. In particular, this study examines the out-of-sample performance of pricing model and compares the model price to market price. Pricing biases related to warrant strike price, time to maturity and volatility are also considered in this study. The empirical results indicate that the stochastic model perform best and the reason why there are significant errors between model price and market price are: irrational investors, incomplete warrant system, and strict assumptions of the models. So it is not appropriate to use time-series model to pricing warrant now, but it will be useful in the future.