Callable Warrant Pricing and Investor Behavior
摘要：Callable warrants are actively traded among investors in Europe and Hong Kong.Investors have lost billions of dollars in trading these contracts. In this talk, I will present analytical formulae for callable warrants’ prices and their return moments under the Black-Scholes-Merton framework. The derivation of these formulae relies extensively on theoretical results about the first passage time and running maximum(minimum) of Brownianmotion with drift. Numerical results show that the trading prices of callable warrants are positively biased and that the distribution of their expected returns is positively skewed. At the end of this talk, I will provide some empirical analyses, which convince us to attribute investors’huge losses to their behavioral proclivities.