A Study On Choice Of The Pricing Model In Warrant Market In China

Warrants firstly appeared in America as financial innovation products, and have become one of the liveliest products in the world financial derivative market. Now, warrants are extensive used by investors, as a tool of investing, hedge and arbitrage.In China, warrants firstly appeared in1992. At that time,"stock certificates" which were the main mode of issuance in Chinese security market, must be the rudiment of warrants. The appearing of warrants in China was a symbol of a new beginning, a beginning of unprecedented increase for Chinese security market. Unfortunately, because of excessive speculation, warrants market closed in1996. In2005, warrants were carried out again as an assist for the share-trading reform. Warrants were approved by market soon, and the lively warrants market made great contribution to enliven Chinese capital market. However, the excessive speculation influenced warrants market again. Under this influencing, the basic function of warrants market, such as price discovery and risk management, could not be effective. At last, warrants market closed in2011once again, and there wasn’t any warrant appeared in Chinese security market.In the two histories of Chinese warrants market, there are many similar problem, such as high turnover rate, strong atmosphere of speculation, highly pricing and so on. The reasons which lead to these results are complicated, but the key reason must be the unreasonable warrants pricing. So, if we want to bring warrants back to security market, and also ensure warrants market can play right role in security market, the firstly problem need to be solved must be the problem of warrants pricing. In that way we can see, the problem of warrants pricing has important realistic significance and studying value. In this paper, we use Black-Scholes model, binary tree model and Montel-Carlo model to do some empirical researches in the warrants market. We selected shenfa warrant, hualing warrant, shenneng warrant and changhong warrant for study. When we use the three models to price them, we also distinguish volatility as history volatility, implied volatility and volatility in GARCH (1,1), and use all of them in each pricing model for comparison. The results show that Montel-Carlo model which used volatility in GARCH (1,1) can give more reasonable warrants pricing. The results also show that highly pricing general existed in warrants market, which means the market system had defect would influence warrants pricing. This paper made a further analysis for this, researched and summarized the problems of warrants market.