Warrant Pricing: An Empirical Investigation on the Valuation Models for Warrants Traded at the Jakarta Stock Exchange

M.B.A. thesis, August 2000

ABSTRACT
The purpose of this work is to investigate empirically the relative performance of pricing models commonly used for warrants traded at advanced markets as applied to those traded at the Jakarta Stock Exchange (JSX). Focus is given to option pricing models incorporating adjustment for dilution and changing volatility.
The data employed in this study consist of 3542 daily observations that belong to 10 most actively traded warrants at the JSX during the period January 1997 to June 2000.
The finding suggests that dilution adjustment improves the pricing performance of Black-Scholes-Merton model. It is also indicated that models that allow an inverse relation between stock price and volatility might promise superior pricing performance. In addition, it is showed that warrants traded at the JSX welcome risk-free arbitrage opportunities.

KEYWORDS
warrant pricing, Indonesia

FULL TEXT
Warrant Pricing.pdf (245 KB)

Leave a Comment

Security Code: