The valuation of equity warrants in a fractional Brownian environment

Weilin Xiao, Weiguo Zhang, Weijun Xu and Xili Zhang

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 4, 1742-1752

Abstract: In this paper, we discuss the valuation of equity warrants in the geometric fractional Brownian environment based on the equilibrium condition. Using the conditional expectation we present a fractional pricing model for equity warrants and analyze the influence of the Hurst parameter. Then we propose an optimization procedure to obtain the valuation of equity warrants. Some numerical examples are given to demonstrate the pricing results by comparing different pricing models. Furthermore, we provide an empirical study to show how to apply our model in realistic contexts, and these comparative results of different pricing models show that the pricing model proposed in this paper matches the actual price quite well.

Keywords: Fractional Brownian motion; Risk preference; Equity warrants; Warrant pricing; Observable variables (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:4:p:1742-1752

DOI: 10.1016/j.physa.2011.10.024

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