ISSN:
1468-036X
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
This paper investigates the pricing of Dutch index warrants. It is found that when using the historical standard deviation as an estimate for the volatility, the Black and Scholes model underprices all put warrants and call warrants on the FT-SE 100 and the CAC 40, while it overprices the call warrants on the DAX. When the implied volatility of the previous day is used the model prices the index warrants fairly well. When the historical standard deviation is used the mispricing of the call and the put warrants depends in a strong way on the mispricing of the previous trading day, and on the moneyness (in a non-linear way), the volatility, and the dividend yield. When the implied standard deviation of the previous trading day is used the mispricing of the call warrants is only related to the moneyness and to the estimated volatility, while the mispricing of put index warrants depends in a strong way on the moneyness, the volatility, the dividend yield and the remaining time to maturity.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1468-036X.1996.tb00030.x
