Mathematical Model of an Innovative Warrant

Abstract:

In order to solve the contradiction of the nontradable share in China’s securities market,some listed companies issue an innovative warrant to compensate the tradable share holders.This innovative warrant is tied up with the stock,as a result,the return of the stock can not be assumed to present a geometry Brownian motion.To price the innovative warrant,the structural approach is adopted and the assets of the firm is regarded as the basic variable,the pricing formulas are obtained for the innovative warrant in both the cases with or without insurance.Theoretical and numerical analysis are made of the impact of different market variables on the price of the innovative warrant.