The profitability of warrant issuers: An empirical investigation of single stock and index warrants
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...
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Main Authors: | , , , , |
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Format: | text |
Language: | English |
Published: |
Institutional Knowledge at Singapore Management University
2021
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Subjects: | |
Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/6844 https://ink.library.smu.edu.sg/context/lkcsb_research/article/7843/viewcontent/Profit_Derivative_Issuer_June27_2021_Final.pdf |
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Institution: | Singapore Management University |
Language: | English |
Summary: | 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. |
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