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Equity warrants pricing problem of mean-reverting model in uncertain environment

Author

Listed:
  • Tian, Miao
  • Yang, Xiangfeng
  • Kar, Samarjit

Abstract

Equity warrant is a contract which permits a holder to own the warrant but not the duty to buy or sell the underlying asset at a certain date for a strike price. Pricing equity warrant is more complicated than pricing standard options, because the equity warrants have to take into account the change of policy options at any time during the tenure of the warrants. This paper takes into account the experts’ opinion that the pricing is not only influenced by the randomness but also the degree of belief of the investors. Therefore, we propose the mean-reverting stock model to analyze the equity warrants using uncertainty theory. In this paper, three types of equity warrants pricing formulas namely European equity warrant, American equity warrant, and Asian equity warrant have been developed based on the uncertain mean-reverting model. The result shows that it is more effective which can be achieved with the uncertainty theory.

Suggested Citation

  • Tian, Miao & Yang, Xiangfeng & Kar, Samarjit, 2019. "Equity warrants pricing problem of mean-reverting model in uncertain environment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 531(C).
  • Handle: RePEc:eee:phsmap:v:531:y:2019:i:c:s0378437119309392
    DOI: 10.1016/j.physa.2019.121593
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    Citations

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    Cited by:

    1. Lu, Jing & Yang, Xiangfeng & Tian, Miao, 2022. "Barrier swaption pricing formulae of mean-reverting model in uncertain environment," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    2. Jin, Ting & Ding, Hui & Xia, Hongxuan & Bao, Jinfeng, 2021. "Reliability index and Asian barrier option pricing formulas of the uncertain fractional first-hitting time model with Caputo type," Chaos, Solitons & Fractals, Elsevier, vol. 142(C).
    3. Yang, Xiangfeng & Liu, Yuhan & Park, Gyei-Kark, 2020. "Parameter estimation of uncertain differential equation with application to financial market," Chaos, Solitons & Fractals, Elsevier, vol. 139(C).
    4. Zhou, Qing & Zhang, Xili, 2020. "Pricing equity warrants in Merton jump–diffusion model with credit risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 557(C).
    5. Jin, Ting & Yang, Xiangfeng, 2021. "Monotonicity theorem for the uncertain fractional differential equation and application to uncertain financial market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 190(C), pages 203-221.

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