Pricing of put warrants and competition among issuers

Wen-Chung Guo and Ying-huei Chen ()
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Ying-huei Chen: Department of Economics, National Taipei University

Economics Bulletin, 2014, vol. 34, issue 4, 2315-2323

Abstract: Issuers may compete with each other by issuing similar warrants with the same underlying stocks, causing a supply-side effect on warrant markets. The study provides a theory and supported evidence that put warrants on individual stocks are issued by third party banks in Taiwan and that they respond to overpricing of a put warrant issued by a competitor by issuing their own with more attractive terms. We measure the mispricing by the theoretical prices of either the square-root constant elasticity volatility (SRCEV) model or the Barone-Adesi and Whaley (BAW) model. The results reveals that competition among issuers helps reduce prices in put warrant markets.

Keywords: Competition among issuers; put warrants; pricing; time to expiration; moneyness. (search for similar items in EconPapers)
JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2014-11-05
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