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Analysing bank-issued option pricing

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  • David Abad
  • Belen Nieto
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    Abstract

    This paper investigates whether Spanish bank-issued options (warrants) trade under a fair price. The analysis is twofold. Price differences between traditional options and equivalent bank-issued options are analysed. The results show that bank-issued options are systematically overpriced with respect to options and that an important portion of such overpricing is related to market design. We also compare the prices of bank-issued options that have the same payoff functions but different issuers. Strikingly, relative price differences between bank-issued options are also found. Moreover, the analysis of the temporal evolution of the price differences between equivalent bank-issued options reveals that they are not decreasing over time.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638591
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 17 (2011)
    Issue (Month): 1 ()
    Pages: 49-65

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    Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:49-65

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    Related research

    Keywords: options; bank-issued options; market design;

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