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Pricing of put warrants and competition among issuers

Author

Listed:
  • Wen-chung Guo

    (Department of Economics, National Taipei University)

  • Ying-huei Chen

    (Department of Economics, National Taipei University)

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.

Suggested Citation

  • Wen-chung Guo & Ying-huei Chen, 2014. "Pricing of put warrants and competition among issuers," Economics Bulletin, AccessEcon, vol. 34(4), pages 2315-2323.
    • Handle: RePEc:ebl:ecbull:eb-14-00863
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Competition among issuers; put warrants; pricing; time to expiration; moneyness.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G0 - Financial Economics - - General

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