Is warrant really a derivative? Evidence from the Chinese warrant market

Eric C. Chang, Xingguo Luo, Lei Shi and Jin E. Zhang

Journal of Financial Markets, 2013, vol. 16, issue 1, 165-193

Abstract: This paper studies the Chinese warrant market that has been developing since August 2005. Empirical evidence shows that the market prices of warrants are much higher systematically than the Black-Scholes prices with historical volatility. The prices of a warrant and its underlying asset do not support the monotonicity, perfect correlation and option redundancy properties. The cumulated delta-hedged gains for almost all expired warrants are negative. The negative gains are mainly driven by the volatility risk, and the trading values of the warrants for puts and the market risk for calls. The investors are trading some other risks in addition to the underlying risks.

Keywords: Warrants; The Chinese warrant market; Option pricing model (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:16:y:2013:i:1:p:165-193

DOI: 10.1016/j.finmar.2012.04.003

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