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Empirical Exercise Behavior Of Warrant Holders And Its Consequences For Warrant Values

Author

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  • CHRISTIAN KOZIOL

    (Department of Finance, University of Mannheim, 68131 Mannheim, Germany)

Abstract

In this paper, we analyze the exercise behavior of warrant holders and its impact on warrant values. For this purpose, we propose a parametric model to describing the exercise volume of warrants and calibrate it to exercise data of 40 warrants from the German market. We find that few too-early exercises but also a significant number of too-late exercises occur. This observed exercise behavior results in warrant values that are more than 3% below those under the optimal exercise strategy for at-the-money warrants and the differences are even much higher for in- and out-of-the-money warrants.

Suggested Citation

  • Christian Koziol, 2006. "Empirical Exercise Behavior Of Warrant Holders And Its Consequences For Warrant Values," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 245-268.
    • Handle: RePEc:wsi:ijtafx:v:09:y:2006:i:02:n:s0219024906003494
    DOI: 10.1142/S0219024906003494
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    Cited by:

    1. Christian Koziol, 2010. "Impact of Imperfect Information on the Optimal Exercise Strategy for Warrants," European Financial Management, European Financial Management Association, vol. 16(3), pages 374-399, June.
    2. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2014. "Individual investors and suboptimal early exercises in the fixed-income market," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 14, University of Passau, Faculty of Business and Economics.
    3. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2014. "What makes individual investors exercise early? Empirical evidence from the fixed-income market," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 15, University of Passau, Faculty of Business and Economics.
    4. Eickholt, Mathias & Entrop, Oliver & Wilkens, Marco, 2018. "What makes individual investors exercise early? Empirical evidence from non-tradable fixed-income products," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 318-334.

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