Dynamic hybrid pricing formulation for equity warrants
Equity warrants are instruments issued by a company that give the stockholder the privilege of buying a stock at a certain strike price within a particular timeframe. Motivated by empirical studies, the Black-Scholes option pricing model is not suitable to price a warrant since both assumptions of c...
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my-uum-etd.101572022-12-14T09:00:21Z Dynamic hybrid pricing formulation for equity warrants 2022 Ibrahim, Siti Zulaiha Roslan, Teh Raihana Nazirah Awang Had Salleh Graduate School of Arts & Sciences Awang Had Salleh Graduate School of Arts and Sciences HJ Public Finance Equity warrants are instruments issued by a company that give the stockholder the privilege of buying a stock at a certain strike price within a particular timeframe. Motivated by empirical studies, the Black-Scholes option pricing model is not suitable to price a warrant since both assumptions of constant volatility and constant interest rates in the model are incompatible. This study proposed the Heston-Cox-Ingersoll- Ross (Heston-CIR) hybrid model to identify the effects of stochastic volatility and stochastic interest rates in pricing equity warrants. The study constructed new analytical pricing formulas for equity warrants by using Cauchy transformation and partial differential equation approaches. The local optimization method is employed to obtain the estimated parameter values by calibrating the Heston-CIR model. The effectiveness of the proposed model is investigated through the empirical study using the data from Bursa Malaysia. The proposed model shows significant improvement on the computation time in estimating nine model parameters, ranging from 38.12 to 62.62 seconds compared to the existing models. Moreover, the empirical study suggested that the proposed model is accurate when compared to the real market over five years period. This model also produced smallest pricing errors among the existing models. The finding also suggested equity warrants in moneyness opportunity, 88.75% of the warrants are profitable. In conclusion, the proposed model performs the best in identifying the effects of stochastic volatility and stochastic interest rates in pricing equity warrants. 2022 Thesis https://etd.uum.edu.my/10157/ https://etd.uum.edu.my/10157/3/s826027_01.pdf text eng 2024-11-09 staffonly https://etd.uum.edu.my/10157/4/s826027_02.pdf text eng public other masters Universiti Utara Malaysia |
| institution |
Universiti Utara Malaysia |
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UUM ETD |
| language |
eng eng |
| advisor |
Roslan, Teh Raihana Nazirah |
| topic |
HJ Public Finance |
| spellingShingle |
HJ Public Finance Ibrahim, Siti Zulaiha Dynamic hybrid pricing formulation for equity warrants |
| description |
Equity warrants are instruments issued by a company that give the stockholder the privilege of buying a stock at a certain strike price within a particular timeframe. Motivated by empirical studies, the Black-Scholes option pricing model is not suitable to price a warrant since both assumptions of constant volatility and constant interest
rates in the model are incompatible. This study proposed the Heston-Cox-Ingersoll- Ross (Heston-CIR) hybrid model to identify the effects of stochastic volatility and stochastic interest rates in pricing equity warrants. The study constructed new analytical pricing formulas for equity warrants by using Cauchy transformation and partial differential equation approaches. The local optimization method is employed to obtain the estimated parameter values by calibrating the Heston-CIR model. The effectiveness of the proposed model is investigated through the empirical study using the data from
Bursa Malaysia. The proposed model shows significant improvement on the computation time in estimating nine model parameters, ranging from 38.12 to 62.62 seconds compared to the existing models. Moreover, the empirical study suggested that the proposed model is accurate when compared to the real market over five years
period. This model also produced smallest pricing errors among the existing models. The finding also suggested equity warrants in moneyness opportunity, 88.75% of the warrants are profitable. In conclusion, the proposed model performs the best in identifying the effects of stochastic volatility and stochastic interest rates in pricing
equity warrants. |
| format |
Thesis |
| qualification_name |
other |
| qualification_level |
Master's degree |
| author |
Ibrahim, Siti Zulaiha |
| author_facet |
Ibrahim, Siti Zulaiha |
| author_sort |
Ibrahim, Siti Zulaiha |
| title |
Dynamic hybrid pricing formulation for equity warrants |
| title_short |
Dynamic hybrid pricing formulation for equity warrants |
| title_full |
Dynamic hybrid pricing formulation for equity warrants |
| title_fullStr |
Dynamic hybrid pricing formulation for equity warrants |
| title_full_unstemmed |
Dynamic hybrid pricing formulation for equity warrants |
| title_sort |
dynamic hybrid pricing formulation for equity warrants |
| granting_institution |
Universiti Utara Malaysia |
| granting_department |
Awang Had Salleh Graduate School of Arts & Sciences |
| publishDate |
2022 |
| url |
https://etd.uum.edu.my/10157/3/s826027_01.pdf https://etd.uum.edu.my/10157/4/s826027_02.pdf |
| _version_ |
1776103754299342848 |