Warrant Valuation Binomial Tree Method

General thinking and logic structureThe first appearance of Baogang stock option on 22,August,2005 witnessed that financial derivatives were introduced into Chinese securities market after more than ten years of exploring. Afterwards,Xingangfan,Wugang,Baiyunjichang and Wanke A issued stock option of several kinds. The introduction of stock option help improve the structure and function of securities market and provide investors with effective risk management tools and approaches to adjust portfolios, which makes the market rich with diversified investment products. Issuing warrants provide securities dealers with opportunities to expand their business and have new business income, which will change the situation of single operation in dealers'business.The introduction of warrants urge the financial innovations in capital market, which will lay solid foundation for other new products and provide practical experience for future derivative market. Since warrants are brand new in Chinese financial market, it is of great importance to assess them.To price warrants in Chinese financial market, we should not copy the model established by foreigners. On the other hand , we should put the features of Chinese financial market and the reality of listing companies issuing the stock options into our model. The general thinking and logic structure of this paper is as this: First, we should introduce the general theory and classification of warrants before we deal with the pricing method in detail; Second , we choose binomial tree model because it is the most simple and practical way to assess them and add some restriction factors, which fit well with the features of Chinese financial market and the reality of listing companies issuing the stock...