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Wen-chung Guo and Ying-huei Chen
''Pricing of put warrants and competition among issuers''
( 2014, Vol. 34 No.4 )
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.
Keywords: Competition among issuers; put warrants; pricing; time to expiration; moneyness.
Manuscript Received : Oct 21 2014 Manuscript Accepted : Nov 05 2014

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