Valuation of Covered Warrant Subject to Default Risk

Shen-Yuan Chen ()
Additional contact information
Shen-Yuan Chen: Graduate Institute of Finance, National Chiao Tung University, No. 1001, Ta Hsuen Road, Hsinchu, 300, Taiwan, R.O.C.

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2003, vol. 06, issue 01, 21-44

Abstract: There is no margin settlement mechanism for existing covered warrants in Taiwan, thus the credit risk of the warrant issuer must be considered when investors evaluate the price of a covered warrant. This paper applies the vulnerable option valuation model to empirically study the difference in the theoretical value of a vulnerable warrant, Black–Scholes option price and the market price of warrant by using the Taiwan warrant data. Empirical results show that the theoretical value of a vulnerable warrant is lower than the Black–Scholes non-vulnerable option value and its market value.

Keywords: Warrant; Option; Vulnerable warrant; Credit risk; Default risk (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091503001018
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:rpbfmp:v:06:y:2003:i:01:n:s0219091503001018

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091503001018

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().