Publication Type
Journal Article
Version
acceptedVersion
Publication Date
10-2021
Abstract
This study examines the derivative warrant's profit of issuers compensated with the risk from issuing call and put derivative warrants because they have commitments in risk management and managing risk by hedging the underlying exposure. The average profit of issuers is a cumulative profit from the first trading day until the last trading day. Consistent with the imperfect competition for issuing put derivative warrants on single stock from different securities borrowing and lending advantages, the profit margin of a put warrant is higher than the call warrant. However, the profit margin from a put warrant is not necessarily higher than the call warrant from issuing derivative warrants on the index because all issuers issue put derivative warrants on the index at the same cost. Moreover, this study examines some risk factors from issuing derivative warrants on a single stock, including Delta risk, Gamma risk, Rho risk, Theta risk, and Vega risk, which could explain issuers’ profit. Consistent with the results from previous studies, we find that Delta, Gamma and Theta risk can explain the profit of issuers from issuing call derivative warrants while Delta, Gamma, Theta and Vega risk can explain the profit for put derivative warrants.
Keywords
Derivative warrants, Profit of issuer, Risk factors of pricing, Delta-hedging
Discipline
Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Applied Economics and Business Research
Volume
11
Issue
2
First Page
90
Last Page
100
ISSN
1927-033X
Citation
WONGNAPAKARN, Ichaya; LEEMAKDEJ, Arnat; CHIRAPHOL, Chiyachantana N.; PRASARNPHANICH, Pattarawan; and MANITKAJORNKIT, Eakapat.
The profitability of warrant issuers: An empirical investigation of single stock and index warrants. (2021). Journal of Applied Economics and Business Research. 11, (2), 90-100.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6844
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Included in
Corporate Finance Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons