Study On Shanghai And Shenzhen Warrant Market Based On Functional Data Analysis

Warrants , as a special form of options, are a contract between the issuer and the holder, which the holder have the right to buy or sell the underlying asset in the agreement time. It is a financial derivative with long history and active trading market in the whole financial market. In the progress of overseas capital market development, warrants are the first choice to introduce financial derivative products because of its unique product design.Warrants' introduction is the result of solutions of shareholder structure reform in the securities market of our country. As a way of pricing, warrants make the non-tradable shares obtain the right to trade at that time. In our country, the way of combining warrant products with shareholder structure reform solved the problems of shortage of financial tools and singleness of reform plan, which provided pilot corporations and investors more optional tools. As soon as its being re-launched, warrants have become the focus of capital market and aroused widespread concern and the massive influx of funds.Butterfly warrants, as the new product of our national listed warrants, have some unique properties. Butterfly warrants are the combination of call warrant and put warrant which are issued by the same underlying stock, and they make the investors get certain profits when the stock price fluctuates within certain interval and suffer no losses if the price waves out of range. As providing investors versatile and flexible investment options, butterfly warrants are well welcomed when they are introduced into market.In our country, as the development of butterfly warrants are just in the period of beginning and the number of listed butterfly warrants is only five in stock market of Shanghai and Shenzhen, the study of butterfly warrants is in the initial stage. The paper uses the butterfly warrants in stock market of Shanghai and Shenzhen as the object of study and study the problems as followed.1. A relatively complete theory system has been set up now about option pricing theory in developed western world. The most mature model is the option pricing model which was developed by Black and Scholes. Because of Black-Scholes option pricing model's simple formation and relative accuracy, it has been widely used in practice. The paper uses Black-Scholes option pricing model to study the pricing of five butterfly warrants in stock market of Shanghai and Shenzhen, and analyzes the reasons in detail of the diviation between the actual price and the theoretical price computed by Black-Scholes option pricing model.2. In functional data analysis, data is analyzed from a functional perspective with viewing the data as a whole. In financial market, as various transactions are carried out consecutively and asset prices and its other index of correlation continually update with high frequency, the data from financial market can be viewed as continuous functional data. Based on the theory of principal components analysis of functional data, the paper which regards the weekly return of butterfly warrants as functional data, analyzes and predicts the variation tendency of butterfly warrants through modelling the weekly return refined by principal components analysis.3. At the last part of paper, the problems of warrant market of Shanghai and Shenzhen which are found by the empirical analysis are analyzed and some policies and suggestions to the problems are proposed.