| Summary: | Prior literature's 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 revolving 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 had 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 mod~ls 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.
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