Pricing warrants: an empirical study of the Black-Scholes model and its alternatives

Article Abstract:

This paper uses a sample of over 25,000 daily warrant prices to empirically investigate potential problems with the commonly used warrant pricing model proposed by Black and Scholes as an extension of their call option model. One problem seems to be especially important: the constant variance assumption of the dilution adjusted Black-Scholes model appears to cause biases in model prices for almost all warrants and over the entire sample period. We show that more accurate price forecasts are obtained with a specific form of the constant elasticity of variance model. (Reprinted by permission of the publisher.)

Prices and rates, Stocks, Stock prices, Stock warrants, Black, F., Scholes, M.

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Inferring trade direction from intraday data

Article Abstract:

This paper evaluates alternative methods for classifying individual trades as market buy or market sell orders using intraday trade and quote data. We document two potential problems with quote-based methods of trade classification: quotes may be recorded ahead of trades that triggered them, and trades inside the spread are not readily classifiable. These problems are analyzed in the context of the interaction between exchange floor agents. We then propose and test relatively simple procedures for improving trade classifications. (Reprinted by permission of the publisher.)

Stock-exchange, Stock exchanges, Buy-sell agreements

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