Title

The Pricing of Initial Public Offerings: An Option Approach

Publication Type

Book Chapter

Publication Date

2008

Abstract

This chapter proposes a theoretical model of initial public offering by taking into account the uncertainty in security pricing and the underwriting process. Three major factors are shown to affect the IPO pricing: (1) the uncertainty of stock price, (2) the legal requirement that restricts underwriters from selling any part of the issue above the fixed offering price, and (3) the underwriters' risk tolerance. It is shown that underpricing is negatively related to the underwriter's risk tolerance, and positively related to the length of premarket period and market price volatility.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Advances in Quantitative Analysis and Accounting

Volume

6

First Page

127

Last Page

141

ISBN

9789812791689

Identifier

10.1142/9789812791696_0007

Publisher

World Scientific

City or Country

Singapore

Additional URL

http://catalogue.smu.edu.sg/record=b1362588~S1