Study On Spread Of Warrant In China

China warrant market used to be the biggest one in the word. Compared to the Hong Kong and German, China warrant market shows 3 characteristics. They are high turnover rate、high warrant price fluctuation ratio and high implied volatility. The warrant market price is higher than the theoretical price in China. At present a lot of studies on warrant pricing are the application of different model in China warrant market. There are little empirical research and the theoretical analysis on the premium of warrants over options. This article tries to answer the following questions:1. Is the premium of warrants over options a popular phenomenon? If the answer of the first question is yes, so what are the factors causing the premium? What factors does the premium depend on?In order to answer the above questions, this article tries to find difference between assumptions of B—S pricing model and China warrant market. The impact of the ban stock shorting on warrant pricing may be several kinds. This article wants to confirm the premium is popular by study on implied volatility. This article also tries to find the relationship between the premium and warrant maturity or volume of trade. The relationship between warrant price and underlying stock price or stock price index will be also studied. The conclusions of this article are as follows. The premium of warrants over options is a popular phenomenon. The shorter the maturity is, the higher premium is. The premium of put warrant is impacted by the volume of trade. The price of call warrant is related to the underlying stock price but not stock price index, which is accord with the pricing theory. The put warrant may be speculative tools, which is irrelevant to the underlying stock or stock price index..This article uses price bubble theory to explain the conclusion above. Investor’s speculative mind makes great contribution to the speculative atmosphere in China warrant market. Market can not correct the premium, because there is no arbitrage strategy. I believe that the conclusion of this article will help the investors and regulators in the derivatives.