Research in Business and Economics Journal, Vol. 3, pp. 1-12, 2010
20 Pages Posted: 12 Dec 2009 Last revised: 29 Mar 2012
Date Written: December 20, 2009
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.
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
Suggested Citation: Suggested Citation
Wilson, Linus, 'The Biggest Warrant Auction in U.S. History' (December 20, 2009). Research in Business and Economics Journal, Vol. 3, pp. 1-12, 2010. Available at SSRN: https://ssrn.com/abstract=1521335 or http://dx.doi.org/10.2139/ssrn.1521335