Violations of Co-movement between Derivative Warrants and Their Underlying: An Empirical Evidence from Thailand
Post by MSF Chula at Tuesday, 8 August 2017 10:35 AM

One of the most basic properties of one-dimensional diffusion pricing models is monotonicity property dictating that the value of a call option monotonically increases with the price of its underlying asset and the value of a put option decreases monotonically with the price of the underlying asset. This paper tests the empirical validity of monotonicity property for derivative warrant prices by collecting all transaction data from July 2009 to June 2012 for call and put derivative warrants written on 51 underlying stocks traded on the Stock Exchange of Thailand (SET). It is found that sampled intraday derivative warrant prices violate the monotonicity property between 1.5% and 5% of the time. In addition, the study provides evidence to show that certain situation and types of investors influence the deviation to the monotonicity property.

Last updated at Tuesday, 8 August 2017 10:35 AM