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Analysing bank-issued option pricing

Author

Listed:
  • David Abad
  • Belen Nieto

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.

Suggested Citation

  • David Abad & Belen Nieto, 2011. "Analysing bank-issued option pricing," The European Journal of Finance, Taylor & Francis Journals, vol. 17(1), pages 49-65.
    • Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:49-65
    DOI: 10.1080/13518471003638591
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    Cited by:

    1. Bae, Kwangil & Lee, Soonhee, 2022. "Prices of derivative warrants considering their market characteristics and short-selling costs of underlying assets," Finance Research Letters, Elsevier, vol. 45(C).

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