The Pricing Behavior of Securities Companies and Mandatory Call Event from Callable Bull/Bear Contracts in Taiwan
Date Issued
2016
Date
2016
Author(s)
Chen, Yin-Jung
Abstract
Callable bull/bear contract is different from warrant with the mandatory call mechanism. It is generally recognized that the mandatory call mechanism is a kind of protection to investors. However, when the callable bull/bear contract expired early, investors also lose the time value of the funding cost. Moreover, if the funding cost is higher, investors will lose more. Thus, the thesis aims to find if the securities companies really set the call price close to price of the underlying asset, so the MCE will occur easily, and the securities companies increase their profits. The empirical results show that the callable bull/bear contract with higher funding cost tends to have a call price close to price of the underlying asset. Second, the callable bull/bear contract of higher funding cost is more likely to have MCE. Third, the dominant securities companies tend to set a call price close to price of the underlying asset, which means the MCE may occur more easily.
Subjects
Callable Bull/Bear Contracts
Mandatory Call Event
Funding Cost
Type
thesis