Pricing Taiwan's covered warrant and trading profits perspective:A empirical study
| Autor: | Tsai, Vincent, 蔡劼峰 |
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| Rok vydání: | 1998 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 86 This study empirically examines the pricing and the trading profits of Taiwan''scovered warrants.In this research BAW pricing model and four alternative volatility estimates are usedd to explain the observed price of warrants.It isfound that models tend to underprice the warrants,especially in deep out-of-the- money.The model price with implied volatility is closer to market price.Pricing errors,possibly caused by the lognormal assumption of the model and higher volatility markup by the issuers,are negative related to the degree to which the warrants are out-of-the-money,the volatility level and time to maturity. In the presence of transactions costs,the security devising a hedging portfoliowith discretely rebalancing faces a tradeoff to choose a short trading interval with small hedging errors and high transactions costs,or a long trading interval with large hedging errors and low transactions costs.We testedwhether it is possible to make excess returns above the risk-free rate of interest by a spcific trading rule.A delta-neutral porfolio is assumed to be maintained at each rebalancing point.We find that discrete-rebalancing will lead to great risk and excess returns are not available to market makers andthe retail investor. Transactions costs have a large effect on hedging performance. When transactions costs are considered,excess returns vanish. Strategies consisting of time-based rule and delta-based rule for reducing transactions costs by rebalancing the hedging position less frequently do not improve hedge performance significantly.A alternative strategy should be proposed. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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