Financial Derivatives Pricing Theory And Its Amendments To China's Financial Market

The modern financial derivatives emerged in the 1970's and are developing rapidly with the rise of the global economics. In China, financial derivatives was introduced in the early 1990's for trial, including the exchange rate futures in Shanghai, the treasury bond futures, the interest rate futures in Hainan and the warrants. However, these trials ended up with failure due to the immature conditions, the negligence of supervising, uncompleted laws, operations off the protocols with moral risks.Financial derivatives have the functions of hedging, pricing discovery and correction, diversifying and transferring the risks, promotion of the primary markets etc., The financial assets have the characters like high risks and fictitious per se, it is though important that financial derivatives promoted the entity economy in our country. The introduction of warrants in 2005 and the upcoming stock index futures are the new starting points for development of financial derivatives, moreover the opportunity to improve the reform process of financial systems and markets in China. At present the domestic research on the financial derivatives is still focusing on the western traditional market and derivatives pricing theory and the analysis of risks. The relating research is blanking through lack of short-mechanism and regulations. Therefore the main task for this essay is to combine the western pricing theories of financial derivatives with the actual conditional in China to analysis the correction effect of the derivatives on the financial market in China.This essay will describe from the views of the pricing theories of various financial derivatives and then discuss the correction functions from the derivatives on our financial markets. There are couples of cut-in points: From the examples of RMB exchange forward markets to express the influence on the process of our reform on RMB exchange system; Through the analysis of index futures to describe the correction effects on our securities markets; Using the Black-Scholes-Merton Option Pricing Model to analysis the pricing case of our BaoGang Warrant and elaborate the correction effect on the stock market; From the examples of interest rate swap discussing the influence on the enterprise financing market.