Empirical Tests of the Pricing of Nikkei Put Warrants

Jason Z Wei

The Financial Review, 1995, vol. 30, issue 2, 211-41

Abstract: The purpose of this study is to empirically examine the pricing of Nikkei put warrants, which are long-term put options written on the Nikkei 225 index. Using warrants traded on the Toronto Stock Exchange, this study performs various tests on the pricing models proposed by Dravid, Richardson, and Sun, Reiner, and Wei. It is found that the models tend to overprice the warrants. The overpricing, possibly caused by the omission of the credit risk and the Extraordinary Event Clause, is found to be positively related to the degree to which the warrants are in the money, the volatility level, and the trading volume. Copyright 1995 by MIT Press.

Date: 1995
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