An Study On The Investment Risk And Its Controlling Measures Of Warrant In Chinese Stock Market

Warrant opens the door for financial derivative innovation and is also a product of current stock market reform. Compared with the shares, warrant has the unique contents and transaction rules. Investment of warrant could be lucrative in both bull market and bear market. It adopts T+0 systems and its stop limits for price going-up or price falling-down are so great. Therefore it is highly profitable and also absolutely risky at the same time. This study explores the forms, features and causes of the warrant investment. These risks include the risk of unexpected price volatility of warrant, the risk of enormous price volatility of underlying stock, the risk of time limit of warrant existence, the risk from warrant issuer unable to carrying out the contract and the risk caused by the unique transaction rules. Given the above-mentioned risks, this study tries to figure out the effective strategies and approaches to avoid them. First of all, this study borrows the internationally popular B-S model to calculate the theoretical value of warrant;secondly, it suggests that investors should be familiar with transaction rule at first;thirdly, it proposes eight principles that investors should abide by;fourthly, it introduces and promotes portfolio to avoid the risk;finally, from the macro point of view it suggests that the regulatory council might as well adopt proper measures to regulate the risk.