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Issuer Credit Ratings and Warrant-Pricing Errors

Author

Listed:
  • Ming-Hsien Chen
  • Yin-Feng Gau
  • Vivian W. Tai

Abstract

This paper examines how issuer credit relates to the level of warrant-pricing errors in Taiwan. The results demonstrate that the premia of warrants with high credit ratings have fewer pricing errors, implying that warrants with higher credit ratings are more fairly priced in terms of the Black-Scholes model. Using more parameters than in traditional option-pricing models, this study contributes to the literature by demonstrating that the credit ratings of warrant issuers have a critical impact on the prices of covered warrants.

Suggested Citation

  • Ming-Hsien Chen & Yin-Feng Gau & Vivian W. Tai, 2013. "Issuer Credit Ratings and Warrant-Pricing Errors," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(S3), pages 35-46, July.
    • Handle: RePEc:mes:emfitr:v:49:y:2013:i:s3:p:35-46
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