| Summary: | 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.
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