Evaluation of binomial model in pricing warrants with historical and implied volatility / Muhammad Nurhakim Ismail

Ismail, Muhammad Nurhakim (2021) Evaluation of binomial model in pricing warrants with historical and implied volatility / Muhammad Nurhakim Ismail. [Student Project] (Unpublished)


The holder is only entitled to directly purchase the common share obligation from the companies on that date by means of a warrant. There are several types of warrants, and each warrant has its reasons to invest. A warrant may offer benefits to investors who know the market and the company. In addition to the Malaysian stock market, warrants are very popular. The warrant has become popular among Malaysian investors today as it provides them with exposure to the underlying share at a fraction of the price. The reason why warrants have been traded is that the gearing effect that warrants can give investors the potential for higher percentage returns than if investors had purchased the shares directly, and the warrants also have a difference between other leverage that warrants risk limited to the initial payment, which means that investors can increase exposure while limiting risk. This study aims to use the binomial model for price call warrants and to compare it with historical and implied volatility. The result of the Mean Square Error (MSE) is be compared between historical and implied volatility. The binomial model in this study is the method used to calculate the price of the call warrant. The data to be used for this study is from DataStream, which can be accessed from the UiTM library. The call warrant pricing data for the binomial model has been calculated using Microsoft Excel. This study's result is that the price of the warrant for historical and implied volatility shows the same pattern as the small price difference. The results show that the implied volatility is better than the historical volatility.


Item Type: Student Project
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Ismail, Muhammad Nurhakim
Subjects: H Social Sciences > HG Finance > Investment, capital formation, speculation > Stock exchanges. Insider trading in securities
Q Science > QA Mathematics > Mathematical statistics. Probabilities
Divisions: Universiti Teknologi MARA, Perlis > Arau Campus > Faculty of Computer and Mathematical Sciences
Programme: Management Mathematics
Keywords: Pricing WarrantS; Binomial Model; Historical Volatility; Implied Volatility; MSE
Date: 4 August 2021
URI: https://ir.uitm.edu.my/id/eprint/49291
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