Tests of warrant pricing models: The trading profits perspective

Shmuel Hauser, Beni Lauterbach

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

This study estimates and compares the trading profits generated by Jour different warrant pricing models. The assumption is that a "more correct" pricing model would demonstrate higher trading excess returns. In a large sample of about 19,000 warrant price observations, the constant elasticity of variance-based models are found to be superior to the Black-Schohs model in identifying mispriced warrants and profit opportunities. The advantage of the constant elasticity of variance models is particularly strong and statistically significant in out-of-the-money and long time to expiration warrants.

Original languageEnglish
Pages (from-to)71-79
Number of pages9
JournalJournal of Derivatives
Volume4
Issue number2
DOIs
StatePublished - 1 Dec 1996
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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