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A comprehensive literature review on pricing equity warrants using stochastic approaches

Ibrahim, Siti Zulaiha and Roslan, Teh Raihana Nazirah and Jameel, Ali Fareed (2020) A comprehensive literature review on pricing equity warrants using stochastic approaches. In: The 6th International Conference on Quantitative Sciences and its Applications (Virtual Conference), 13-14 Oktober 2020, Universiti Utara Malaysia (UUM).

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Abstract

Prior literature's revealed that most researchers tend to employ the Black Scholes model to price equity warrants. However, the Black Scholes model was found deficient by contributing to large estimation errors and mispricing of equity warrants. Therefore( issues revolving equity warrants are discussed in this paper, by focusing on specific topics and respective stochastic models to provide a basis for improvements in future research. In recent years, stochastic approaches had been used to a great extent among researchers due to the expansive applications in both theoretical and practical sense. Subsequently, this paper provides the results of a comprehensive literature review on various stochastic modelling methods and its applications for pricing financial derivatives in terms of applications, modifications of methods, comparisons with other methods, and general related researches. Focus is given on two types of stochastic mod~ls namely stochastic volatility and stochastic interest rate models; along with the discussions associating these two types of models. This paper acts as a valuable source of information for academic researchers and practitioners not only for pricing financial instruments, but also in various other fields involving stochastic techniques.

Item Type: Conference or Workshop Item (Paper)
Uncontrolled Keywords: equity warrants, stochastic models, stochastic volatjlity, stochastic interest rate, Black Scholes model.
Subjects: Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Divisions: School of Quantitative Sciences
Depositing User: Mrs. Norazmilah Yaakub
Date Deposited: 22 Dec 2020 02:52
Last Modified: 06 Mar 2022 09:39
URI: https://repo.uum.edu.my/id/eprint/27993

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