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Modeling the price of hybrid equity warrants under stochastic volatility and interest rate

Previous studies revealed that most local researchers frequently used the Black Scholes model to price equity warrants. However, the Black Scholes model was perceived of possessing too many drawbacks, such as big errors of estimation and mispricing of equity warrants. In this work, we consider the p...

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Main Authors: Roslan, Teh Raihana Nazirah, Jameel, Ali F, Ibrahim, Siti Zulaiha
Format: Article
Language:English
Published: COMPUSOFT 2020
Subjects:
QA76 Computer software
Online Access:http://repo.uum.edu.my/27992/1/IJACT%209%203%202020%203586%203589.pdf
http://repo.uum.edu.my/27992/
https://www.ijact.in/index.php/ijact/article/view/1125
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spelling my.uum.repo.279922020-12-22T01:52:20Z http://repo.uum.edu.my/27992/ Modeling the price of hybrid equity warrants under stochastic volatility and interest rate Roslan, Teh Raihana Nazirah Jameel, Ali F Ibrahim, Siti Zulaiha QA76 Computer software Previous studies revealed that most local researchers frequently used the Black Scholes model to price equity warrants. However, the Black Scholes model was perceived of possessing too many drawbacks, such as big errors of estimation and mispricing of equity warrants. In this work, we consider the problem of pricing hybrid equity warrants based on a hybrid model of stochastic volatility and stochastic interest rate. The integration of stochastic interest rate using the Cox-Ingersoll-Ross (CIR) model, along with stochastic volatility of the Heston model was first developed as a hybrid model. We solved the governing stochastic equations and come up with analytical pricing formulas for hybrid equity warrants. This provides an alternative method for valuation of equity warrants, compared to the usual practice of utilizing the Black Scholes pricing formula. COMPUSOFT 2020 Article PeerReviewed application/pdf en http://repo.uum.edu.my/27992/1/IJACT%209%203%202020%203586%203589.pdf Roslan, Teh Raihana Nazirah and Jameel, Ali F and Ibrahim, Siti Zulaiha (2020) Modeling the price of hybrid equity warrants under stochastic volatility and interest rate. COMPUSOFT: International Journal of Advanced Computer Technology, 9 (3). pp. 3586-3589. ISSN 23200790 https://www.ijact.in/index.php/ijact/article/view/1125
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutional Repository
url_provider http://repo.uum.edu.my/
language English
topic QA76 Computer software
spellingShingle QA76 Computer software
Roslan, Teh Raihana Nazirah
Jameel, Ali F
Ibrahim, Siti Zulaiha
Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
description Previous studies revealed that most local researchers frequently used the Black Scholes model to price equity warrants. However, the Black Scholes model was perceived of possessing too many drawbacks, such as big errors of estimation and mispricing of equity warrants. In this work, we consider the problem of pricing hybrid equity warrants based on a hybrid model of stochastic volatility and stochastic interest rate. The integration of stochastic interest rate using the Cox-Ingersoll-Ross (CIR) model, along with stochastic volatility of the Heston model was first developed as a hybrid model. We solved the governing stochastic equations and come up with analytical pricing formulas for hybrid equity warrants. This provides an alternative method for valuation of equity warrants, compared to the usual practice of utilizing the Black Scholes pricing formula.
format Article
author Roslan, Teh Raihana Nazirah
Jameel, Ali F
Ibrahim, Siti Zulaiha
author_facet Roslan, Teh Raihana Nazirah
Jameel, Ali F
Ibrahim, Siti Zulaiha
author_sort Roslan, Teh Raihana Nazirah
title Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
title_short Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
title_full Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
title_fullStr Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
title_full_unstemmed Modeling the price of hybrid equity warrants under stochastic volatility and interest rate
title_sort modeling the price of hybrid equity warrants under stochastic volatility and interest rate
publisher COMPUSOFT
publishDate 2020
url http://repo.uum.edu.my/27992/1/IJACT%209%203%202020%203586%203589.pdf
http://repo.uum.edu.my/27992/
https://www.ijact.in/index.php/ijact/article/view/1125
_version_ 1687396255005671424
score 13.244368

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