The Singapore equity warrants market

Abstract

The domestic equity warrants market is still at its adolescence stage of development, and

like all other young markets, it has its problems and opportunities. It is surprising that

local researches, in a way, have neglected the significance of this market. This research

aims to provide insight into the local warrant market and its underlying instrument. Each

and every aspects of the market have been looked into and it is found that the domestic

warrant market has a vast potential for growth and sophistication.

The pricing of warrants is a relatively new subject in local securities research. Prior works

done mainly focused on the mathematical modelling techniques pioneered by Black &

Scholes. However, none of them managed to produce consistency in all situations. The

authors, in search of a satisfactory pricing model for local warrants, have made use of

econometric techniques in their model formulation. The empirical results showed that,

with respect to local warrants, econometric modelling is a more superior approach than

the theoretical Black & Scholes warrant valuation model. The success of this empirical

study has opened a new dimension in research on warrant pricing as to date, very little

works have been done using the econometric modelling techniques. The model developed

in this study thus provides a plausible approach on warrant valuation.