Pricing For Warrant Bonds Under The Constant Elasticity Of Variance (CEV) Model

In1843, the first convertible bond is issued in the United States. After160years’development and innovation, the world convertible bond market has been mature andprosperous. The convertible bond market in China has been recognized by more andmore investors from the pilot phase in the early1990s to the rapid development stagein recent years. On May8,2006,《Securities Issuance and Management on ListedCompanies》make the warrant bonds as listed companies refinancing species for thefirst time, which indicates that the convertible bond market will have more broaddevelopment space. Therefore pricing for warrant bonds has become an importantcontent of convertible bonds research areas.At present, domestic and foreign research on warrant bonds has great progress,but most of these studies only considered the difference between warrant bonds andconvertible bonds and warrant bonds financing from the qualitative point of view.This paper gives warrant bonds the price formula from a quantitative point of view.This paper first introduce the CEV model into pricing for warrant bonds,assuming there are only two assets in the market: risky assets and the risk-free asset.The price of risky asset follows the CEV model, making use of Feller Lemma, thethe price formula of warrant bonds model can been given. The other innovation of thispaper is applying non-central chi-square distribution method to option pricing modelskillfully, and the warrant bonds price formula get the ideal analytical solution, whichis non-central chi-square distribution form. Finally, we analyse every part of theprice formula and give the economic significance.