A Comparison Study Between Market And Theory Price Of Chinese Bond With Warrants

1.The research contents and ideasOn April 26,2006,《Securities Issuance and Management on Listed Companies》starts to implement.It puts forward the concept of bond with warrants.The full name of bond with warrants is convertible bond which its warrant and bond exchanges separately.It is a hybrid securities of bond and stock.It still is a innovate product in our country’s capital market. WBs is a win-win situation of both the variety of innovative investment and financing,so we will encourage qualified listed companies to issue WBs.By the end of October 2008,18 listed companies have issued WBs,and there are currently 26 listed companies to submit a separate application for the issuance of convertible bonds transaction, waiting for approval of the SFC. However, the second half of 2008, separate approval of trading convertible bonds became slow way to make the transaction before the intention to adopt separate convertible bond financing, several companies have begun to terminate the program.The main reason may be the market prices do not reflect the value of the WBs and the warrants. If things continue as this way,the healthy and stable capital market development will not be conducive. So,this article will be carried out on 13 WBs in China’s capital market,with a view to seeking in the new market environment.2.Main contentThis paper is composition of five parts.Chapter 1 is to introduce the objective of this paper,the classical theory of option pricing and the research achievements at home and aboard.Then we introduce the framework,contribution and inadequate of this research.Chapter 2 is about the background of the WBs.We introduce the WBs concept,invest value,and analyze the current situation in China.Chapter 3 is the theoretical part of the article.First we outline the pricing theories and methods,and then focus on the option pricing model.Chapter 4 is the core of the article.First we research the pure of the bonds.The emphasis and difficulty lie in the price of the warrants.This article mainly due to the pricing method is based on consideration of the dilution effect,and the option pricing model is based on the Black-Scholes option pricing model.Then we use GARCH(1,1)model to revise the historical fluctuation rate. At last we determine the final price of the WBs.Next,we analyzes the theoretical value and the market price.The results showed that the bond part is a very good price,but the warrant part is not.We analyze the possible causes.Chapter 5 is some conclusions based on this paper.3.The main views and contributions(1)Based on existing digital resources of Swufe’library,this article is the first paper studies the 13 WBs of China;(2)The bond market price is very close to the theoretical value,but the warrants’market price is much higher than the theoretical value.There may be two main reasons:the model and the market.We should standardize the warrant investment to creat a healthy environment for Chinese WBs development.