A Study On Call Warrants Pricing In China Based On Generalized Black-scholes Model

The warrant, as a type of financial derivative, is similar to the option. On August 22, 2005, the Baosteel warrant came into circulation, which indicates that our market warrants has become to restart. The warrant is a type of financial derivative that is of great significance to the equity warrant separation reform, activating stock market and improving stock market price system. Thus warrant is likely to become a real financial derivative independent from equity reform, and offers a new invest tool for the investors. The fluctuation of warrants'price revealed the huge risk of warrants investment to investors vividly, so the study of warrants'price behavior is quite necessary in China. In this paper, by using stochastic calculus theories and martingale methods, we obtain the pricing formulas of the corresponding warrant pricing models on the basis of B-S model, and applied them into the research of China's warrants pricing.The paper is organized as follows:In chapter one, we introduce some elementary knowledge of the option and warrant, and give some definitions and lemmas which will be used in the following chapters.In chapter two, we introduce B-S and its generalized models to price the warrants. In order to modify the B-S model, there are two ways: The first one considers jumps into the return process; the second one assumes the volatility follows a stochastic process. We price the warrant under stochastic interest rate and jump-diffusion model first. Then, we consider establishing stochastic volatility and stochastic rate. Both we get the pricing formulas. At last, we consider all the factors to model European call option, using martingale probability measure methods, we obtain its pricing.In chapter three, we choose CWB1 to give the theoretical price under historical volatility and implied volatility of B-S model, We price the warrant under stochastic interest rate and jump-diffusion model first. Then, we consider establishing stochastic volatilityand compare them with the market price to find which model is better.In chapter four, we give some conclusions and suggestions.