Pricing of put warrants and competition among issuers

Issuers may compete with each other by issuing similar warrants with the same underlying stocks, causing a supply-side effect on warrant markets. The study provides a theory and supported evidence that put warrants on individual stocks are issued by third party banks in Taiwan and that they respond to overpricing of a put warrant issued by a competitor by issuing their own with more attractive terms. We measure the mispricing by the theoretical prices of either the square-root constant elasticity volatility (SRCEV) model or the Barone-Adesi and Whaley (BAW) model. The results reveals that competition among issuers helps reduce prices in put warrant markets.