This paper explores whether the pricing of the option-type derivative is affected by some of fundamental characteristics, such as size and liquidity of the derivative itself and the underlying asset, which are not involved in the standard pricing theory. Considering the unique status of warrants in China due to the relatively more flexible trading mechanism, I empirically examine the pricing of Chinese covered warrants to develop this study. Empirical results show that market prices of Chinese warrants are significantly higher than theoretical prices predicted by traditional pricing models such as Black-Scholes, Jump-Diffusion, and CEV model. For call warrants, about 25 percent of the market price can not be explained by pricing models, and this figure rises to over 60 percent for put warrants. Further regression tests show that both size and liquidity of warrants and underlying stocks significantly affect warrant pricing errors. The way in which the size and liquidity affect the pricing error depends on the type of warrants. In addition, it is evident that movements of put warrant prices in China do not follow movements of stock prices. To explain the above pricing puzzles,the concept of functional asset pricing is proposed. According to this concept, these pricing puzzles just reflect the existence of functional value of financial instruments that has long been neglected by traditional pricing models. In fact, Due to the high level of liquidity and popularity, the Chinese warrant may well function as a good tool for obtaining short-term profits. The pricing of Chinese warrants by the market may correctly re°ect the value of this function, and thus is rational in essence.