An Empirical Investigation of the Factors that Determine the Pricing of Dutch Index Warrants

Posted: 6 Apr 1995

See all articles by Frans de Roon

Frans de Roon

Tilburg University - Department of Finance

Chris Veld

Monash University

Multiple version iconThere are 2 versions of this paper

Date Written: December 1994

Abstract

This paper investigates the pricing of Dutch index warrants. It is found that when using the historical standard deviation as an estimate for the volatility, the Black and Scholes model underprices all put warrants and call warrants on the FT-SE 100 and the CAC 40, while it overprices the warrants on the DAX. When the implied volatility of the previous day is used the model prices the index warrants fairly well. When the historical standard deviation is used the mispricing of the call and put warrants depends in a strong way on the mispricing of the previous trading day, and on the moneyness (in a nonlinear way), the volatility and the dividend yield. When the implied standard deviation of the previous trading day is used the mispricing of the call warrants is only related to the moneyness and to the estimated volatility, while the mispricing of put index warrants depends in a strong way on the moneyness, the volatility, the dividend yield and the remaining time to maturity.

JEL Classification: G13

Suggested Citation

de Roon, Frans A. and Veld, Chris, An Empirical Investigation of the Factors that Determine the Pricing of Dutch Index Warrants (December 1994 ). Available at SSRN: https://ssrn.com/abstract=6071

Frans A. De Roon

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 1 3466 8361/3025 (Phone)
+31 1 3466 2875 (Fax)

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

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