Data:2009-12-12 2:34
Category: Money tips Release Date: 2006-11-22
SSE today released a joint research project on the subject of the report card - "Warrant pricing and hedging strategy for research." The report of the warrant pricing theory has done a review and presentation and in a series of assumptions, on China's mainland market warrants a comparative study of hedge effectiveness obtained with Whalley-Wilmott hedging strategy is superior to the other hedging strategies Conclusions. Report points out that, BS formula is the classic model of option pricing theory, since the calculation is relatively simple application in practice has been widely adopted. But the theory itself involves a number of assumptions and practices do not match, such as the perfect market hypothesis, stock prices change process presents a log-normal distribution, stock price volatility î—?Volatility is fixed and the interest rates unchanged and so on. The relaxation of these assumptions or improved, resulting in a number of new pricing models.
Since China's mainland market does not exist at present warrants market, the pricing efficiency of pricing model could not be tested. Report using MonteCarlo simulation approach to VaR value is measured to study the intermittent hedging and the existence of transaction costs case, the effect of various hedging strategies hedge the issue and found that Whalley-Wilmott strategy is superior to hedging with Other hedging strategies.
The report also pointed out that different metrics may produce different conclusions. Moreover, the inspection process does not take into account random fluctuations in rates, bid-ask spread and stock prices jump and so on. In addition, the testing process does not consider China's market in some special cases, such as restrictions on short selling and the decline in inflation. These are the follow-up studies should pay attention to.
The report also pointed out that the value of warrants, including the intrinsic value and time value. Value of time as the warrant expiration date will move closer to the reduced long-term holders of the result is likely to be the ultimate loss of all the royalties. Therefore, investors must not use, like investing in stocks the same method of operation. Smart investors can be found, even if the stock price fell, under certain conditions, the investment warrants the loss of more than investing in stocks is smaller, reflecting the loss of the role of the C of E lock. Warrants also have time-sensitive. Warrants have a duration, generally ranging from three months to two years, when the warrants at maturity, if not with the exercise of value, investors will lose all of its right to payment
