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Equity warrants model based on uncertain exponential Ornstein–Uhlenbeck equation

  • Fuzzy systems and their mathematics
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Abstract

An equity warrant allows warrant holders to buy stocks of listed companies at a certain price on a promissory day. Classified by the time of exercise right, there are two types of equity warrant, namely European equity warrants and American equity warrants. The European equity warrants allow the buyers to exercise their rights only on the expiring date. In contrast, American warrants enable the buyers to exercise their rights before or on the expiring date. Based on the assumption that the firm’s value follows an uncertain exponential Ornstein–Uhlenbeck process instead of a stochastic process, this paper mainly solves the pricing problems of European and American equity warrants. The most significant advantage of this paper is offering the corresponding formulas to calculate equity warrants, which are not complicated compared with the classical stochastic financial theory. Besides, the minimum cover estimation method is applied to estimate the parameters in an uncertain exponential Ornstein–Uhlenbeck equation, and a simulation example is provided to show the effectiveness of the proposed pricing formulae.

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Acknowledgements

The authors gratefully acknowledge the financial support provided by the Program for Young Excellent Talents in UIBE (No.18YQ06).

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Authors and Affiliations

  1. School of Information Technology and Management, University of International Business and Economics, Beijing, 100029, China

    Geng Li, Xiangfeng Yang & Huadong Wu

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  1. Geng Li
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  2. Xiangfeng Yang
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  3. Huadong Wu
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Contributions

Geng Li contributed to formal analysis, investigation, resources, writing—review & editing, validation. Xiangfeng Yang contributed to conceptualization, methodology, supervision, project administration, funding acquisition. Huadong Wu contributed to software, simulation & visualization, data curation

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Correspondence to Xiangfeng Yang.

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Li, G., Yang, X. & Wu, H. Equity warrants model based on uncertain exponential Ornstein–Uhlenbeck equation. Soft Comput 25, 12797–12803 (2021). https://doi.org/10.1007/s00500-021-06074-9

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  • DOI: https://doi.org/10.1007/s00500-021-06074-9

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