Analysing bank-issued option pricing

David Abad and Belen Nieto

The European Journal of Finance, 2011, vol. 17, issue 1, 49-65

Abstract: This paper investigates whether Spanish bank-issued options (warrants) trade under a fair price. The analysis is twofold. Price differences between traditional options and equivalent bank-issued options are analysed. The results show that bank-issued options are systematically overpriced with respect to options and that an important portion of such overpricing is related to market design. We also compare the prices of bank-issued options that have the same payoff functions but different issuers. Strikingly, relative price differences between bank-issued options are also found. Moreover, the analysis of the temporal evolution of the price differences between equivalent bank-issued options reveals that they are not decreasing over time.

Keywords: options; bank-issued options; market design (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/13518471003638591

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