Financial Substitutes and the Deviation between Warrant Market prices and Theoretical Prices

• Main Authors: Chang, Shao-Wei, 張紹瑋
• Other Authors: Guo, Wen-Chung
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/28793912766213283394

碩士 === 國立臺北大學 === 經濟學系 === 97 === The purpose of this paper is to examine the factors of the disparity between market prices of warrants and their theoretical prices based on Black-Scholes model and Square-Root CEV model. Five major explanations were suggested for the mispricing phenomenon. These explanations are money ratio, year to expiration, turnover rate , historical volatility of stock return and market factors. Empirical evidence shows that historical volatility of stock return and year to expiration are both inversely correlated with pricing deviation. Turnover rate holds a positive relationship to pricing deviation. There holds a positive relationship to pricing deviation in in-the-money warrants. Market factors are inversely correlated with pricing deviation, so we can say that there are existing competitive effects in warrant market. Finally, Black-Scholes model’s pricing deviation is smaller than Square-Root CEV model’s pricing deviation. This phenomenon we will discuss later in this article.