Universal Journal of Accounting and Finance Vol. 9(3), pp. 396 - 404
DOI: 10.13189/ujaf.2021.090314
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A Comprehensive Literature Review on Pricing Equity Warrants Using Stochastic Approaches


Siti Zulaiha Ibrahim 1,*, Teh Raihana Nazirah Roslan 2,3, Ali F Jameel 1
1 Department of Mathematics & Statistics, School of Quantitative Sciences, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia
2 Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, 50300 Kuala Lumpur, Malaysia
3 Institute of Strategic Industrial Decision Modelling, School of Quantitative Sciences, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia

ABSTRACT

Prior studies revealed that most researchers tend to employ the Black Scholes model to price equity warrants. However, the Black Scholes model was found deficient by contributing to large estimation errors and mispricing of equity warrants. Therefore, issues involving equity warrants are discussed in this paper, by focusing on specific topics and respective stochastic models to provide a basis for improvements in future research. In recent years, stochastic approaches have been used to a great extent among researchers due to the expansive applications in both theoretical and practical sense. Subsequently, this paper provides the results of a comprehensive literature review on various stochastic modelling methods and its applications for pricing financial derivatives in terms of applications, modifications of methods, comparisons with other methods, and general related researches. Focus is given on two types of stochastic models namely stochastic volatility and stochastic interest rate models, along with the discussions associating these two types of models. This paper acts as a valuable source of information for academic researchers and practitioners not only for pricing financial instruments, but also in various other fields involving stochastic techniques.

KEYWORDS
Equity Warrants, Stochastic Models, Stochastic Volatility, Stochastic Interest Rate, Black Scholes Model

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Siti Zulaiha Ibrahim , Teh Raihana Nazirah Roslan , Ali F Jameel , "A Comprehensive Literature Review on Pricing Equity Warrants Using Stochastic Approaches," Universal Journal of Accounting and Finance, Vol. 9, No. 3, pp. 396 - 404, 2021. DOI: 10.13189/ujaf.2021.090314.

(b). APA Format:
Siti Zulaiha Ibrahim , Teh Raihana Nazirah Roslan , Ali F Jameel (2021). A Comprehensive Literature Review on Pricing Equity Warrants Using Stochastic Approaches. Universal Journal of Accounting and Finance, 9(3), 396 - 404. DOI: 10.13189/ujaf.2021.090314.