Dynamic Pricing Formulation for Hybrid Equity Warrants (S/O 14193)
Equity warrants provide the option of purchasing stocks at specific exercise price and time. This study develops hybrid equity warrants’ pricing formula using Heston-CIR model by considering the volatility and interest rate as stochastic processes. Analytical pricing formulas for hybrid equity warra...
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| Main Authors: | , , |
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| 格式: | Monograph |
| 語言: | English |
| 出版: |
UUM
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| 在線閱讀: | https://repo.uum.edu.my/id/eprint/31563/1/14193.pdf https://repo.uum.edu.my/id/eprint/31563/ |
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| 總結: | Equity warrants provide the option of purchasing stocks at specific exercise price and time. This study develops hybrid equity warrants’ pricing formula using Heston-CIR model by considering the volatility and interest rate as stochastic processes. Analytical pricing formulas for hybrid equity warrants are derived using Cauchy transformation and partial differential equation approaches. Next, the local optimization method is used to estimate all model parameters via calibration to the real market and evaluated against
the Black-Scholes model and the Noreen Wolfson model. Our model gives a good fit to the market prices and performs the best in statistical error measurements. Additionally, our study on warrants’ moneyness revealed that most of the warrants involved are
in-the-money, which offers great returns to investors |
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