'The Biggest Warrant Auction in U.S. History'

Abstract:     
On December 10, 2009, the auction of JP Morgan Chase’s warrants raised gross proceeds of $950 million, topping the previous warrant auction record of the 1983 Chrysler warrants in real and nominal terms. This paper analyzed the results from the secondary market trading on December 9, 2009, of the Troubled Asset Relief Program (TARP) warrants issued by Capital One Financial (COF) to estimate the likely auction price of the JP Morgan Chase (JPM) TARP warrants. The Capital One Financial warrants have displayed an implied volatility discount relative to other historic and implied volatility metrics. The paper translates the percent volatility discounts from traded TARP warrants to estimate the likely implied volatility of long-dated TARP warrants that have not yet gone to auction.

Number of Pages in PDF File: 20

Keywords: bailout, banks, banking, Capital Purchase Program, Emergency Economic Stabilization Act, options, TARP, valuation, warrants, Capital One Financial, J.P. Morgan Chase, TCF Financial

JEL Classification: G01, G13, G21, G28, G32, G38

working papers series