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| Author: | Horst, J. ter Veld, C. |
| Title: | An empirical analysis of the pricing of bank issued options versus options exchange options |
| Journal: | European Financial Management
2008 : MAR, VOL. 14:2, p. 288-314 |
| Index terms: | financial markets marketing investment banks stock exchanges options call options warrants Netherlands |
| Language: | eng |
| Abstract: | This study start with a direct comparison btw. call warrants (henceforth as: c-wrs.) and call options (as: c-opts.), written on the same stock and with the same exercise price, but with a longer time to maturity for the c-opts. In 13 out of 16 cases, the c-wrs. are found to be priced higher. Option pricing models are used to compare the pricing of c-wrs. and c-opts. If implied standard deviations from options are used to price the c-wrs., it is found that the c-wrs. are strongly overpriced during the first five trading days. The average overpricing (here as: o-prg.) is from 25 to 30 percent. Only a small part of the o-prg. can be explained by rational arguments such as transaction costs. It is suggested that the o-prg. can be explained by a combination of an active financial marketing by the banks and the framing effect. |
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