Put-call parities and the value of early exercise for put options on a performance index

Futures Markets;finance

Announcement effects of convertible bond loans versus warrant-bond loans: An empirical analysis for the Dutch market

This study investigates the announcement effects of offerings of convertible bond loans and warrant-bond loans using data for the Dutch market. Using standard event study methodology it is found that on average stock prices show a positive but insignificant abnormal return for the announcement of a convertible bond loan and a significant positive abnormal return for the announcement of a warrant-bond loan. These findings contrast with studies for the United States which generally find significant negative abnormal returns for convertible bond loans and negative but no significant abnormal returns for warrant-bond loans. This can be explained by the fact that Dutch companies generally package these announcements with other (good) firm specific news. Using regression analysis, in which the amount of new equity and new debt involved in the issue are taken into account, it is found that shareholders react more positively to the announcement of warrant-bond loans than to the announcement of convertible bond loans.Bond Markets;Convertible Bonds;finance

An empirical investigation of the factors that determine the pricing of Dutch index warrants

This paper investigates the pricing of Dutch index warrants. It is found that when using the historical standard deviation as an estimate for the volatility, the Black and Scholes model underprices all put warrants and call warrants on the FT-SE 100 and the CAC 40, while it overprices the warrants on the DAX. When the implied volatility of the previous day is used the model prices the index warrants fairly well. When the historical standard deviation is used the mispricing of the call and the put warrants depends in a strong way on the mispricing of the previous trading day, and on the moneyness (in a nonlinear way), the volatility and the dividend yield. When the implied standard deviation of the previous trading day is used the mispricing of the call warrants is only related to the moneyness and to the estimated volatility, while the mispricing of put index warrants depends in a strong way on the moneyness, the volatility, the dividend yield and the remaining time to maturity.Pricing;Financial Markets;finance

An empirical analysis of the hedging effectiveness of currency futures

Existing research on the hedging effectiveness of currency futures assumes that futures positions are continuously adjusted. This is an unrealistic assumption in practice. In this paper we study the hedging effectiveness for futures positions which are not adjusted during the hedge period. For this purpose an out-of-sample approach is used. Three models are used to determine hedge ratios and hedging effectiveness. These are the minimum-variance model of Ederington (1979), the "-t model of Fishburn (1977), which is a model in which the disutility of a loss is minimized, and the Sharpe-ratio model of Howard and D'Antonio (1984, 1987). For the minimum-variance model and the "-t model it is found that the naively hedged positions yield a higher effectiveness than the unadjusted model-based hedged positions. For the Sharpe-ratio model it is found that both naively and model-based hedged positions lead to a lower hedging effectiveness than unhedged positionsCurrency;Hedging;Econometric Models;Futures;econometrics

A Study on the Efficiency of the Market for Dutch Long Term Call Options

We investigate the efficiency of the market for 5 year call options which are traded on the European Options Exchange in Amsterdam.We study both delta, delta-vega, and delta-gamma neutral arbitrage portfolios.We do not detect any serious inefficiencies in the market for long term call options.This result is in line with previous studies on different kinds of call options and warrants. The results for the delta-vega and delta-gamma neutral arbitrage strategies differ from the results of the simple delta-neutral strategies in two ways: they lead to positive results more often, but the variance of these results is also larger.Options;futures markets;The Netherlands

The Dividend and Share Repurchase Policies of Canadian Firms

We empirically investigate dividend and share repurchase policies of Canadian firms. We have sent aquestionnaire to the 500 largest non-financial Canadian companies listed on the Toronto StockExchange, of which 191 usable responses were returned. These data are used to measure firmcharacteristics. We use several logit regression analyses to test the structure and determinants of thedividend and share repurchase choice. Our results are consistent with a structure in which thecompany first decides whether it wants to pay out cash to its shareholders or not. In the second stagethe firm decides on the form of the payout: dividends, share repurchases or both. Payout is determinedby free cash flow. The choice for dividends and repurchases depends on behavioral and taxpreferences. Furthermore, the payout is less likely to be dividends if the company has executive stockoption plans. Finally, we find evidence for the Brennan and Thakor (1990) model. According to thismodel the existence of asymmetric information amongst outsiders is associated with a preference fordividend payments over share repurchases.dividends;nested logit models;payout decisions;share repurchases;strategic financial decisions

The Dividend and Share Repurchase Policies of Canadian Firms: Empirical Evidence based on New Research Design

We empirically investigate dividend and share repurchase policies of Canadian firms. We use several logit regression analyses to test the structure and determinants of the dividend and share repurchase choice. We have sent a questionnaire to the 500 largest non-financial Canadian companies listed on the Toronto Stock Exchange, of which 191 usable responses were returned. These data are used to measure firm characteristics. Our results are consistent with a structure in which the company first decides whether it wants to pay out cash to its shareholders or not. In the second stage the firm decides on the form of the payout: dividends, share repurchases or both. Payout is determined by free cash flow. The type of payout depends on behavioral and tax preferences. Furthermore, the payout is less likely to be dividends if the company has executive stock option plans. Finally, we find evidence for the Brennan and Thakor (1990) model. According to this model the existence of asymmetric information amongst outsiders is associated with a preference for dividend payments over share repurchases.dividend policy;shares

An empirical investigation of the factors that determine the pricing of Dutch index warrants

This paper investigates the pricing of Dutch index warrants. It is found that when using the historical standard deviation as an estimate for the volatility, the Black and Scholes model underprices all put warrants and call warrants on the FT-SE 100 and the CAC 40, while it overprices the warrants on the DAX. When the implied volatility of the previous day is used the model prices the index warrants fairly well. When the historical standard deviation is used the mispricing of the call and the put warrants depends in a strong way on the mispricing of the previous trading day, and on the moneyness (in a nonlinear way), the volatility and the dividend yield. When the implied standard deviation of the previous trading day is used the mispricing of the call warrants is only related to the moneyness and to the estimated volatility, while the mispricing of put index warrants depends in a strong way on the moneyness, the volatility, the dividend yield and the remaining time to maturity.