The valuation of warrants in Thailand : using the black-scholes model

Abstract

The study aims to examine the appropriate pricing model for valuating wa"ants traded on the Stock Exchange of Thailand. The Black-Scholes model and its extensions are examined with historical and GARCH volatilities by using the out-of-sample data. The relationships between pricing errors and model variables are also analyzed. Findings suggest that the dilution adjusted Black--Scholes model with historical volatility is the most suitable model to predict the wa"ant prices and most pricing models tend to overprice in-the-money wa"ants and overprice wammts when high volatility or high interest rate is anticipated. In addition, the dividend and dilution somewhat create pricing biases.