Pricing effects when competitors arrive: The case of discount certificates in Germany

Volatility discovery and volatility quoting on markets for options and warrants

“…The information shares reported in Table 3 show that the options market is the informational leader in terms of volatility discovery with an information share highly significant above 0.5, even if all contemporaneous effects are attributed to the warrants market. This finding justifies the use of the options market as a reference market for implied volatilities in the analysis of other retail derivatives markets, as frequently done in the literature (e.g., Baule [2011]; Entrop, McKenzie, Wilkens, & Winkler [2016]; Schertler [2016]; Schertler & Stoerch [2015]).…”

“…It is, however, known that issuers of retail derivatives engage in strategic pricing and thus in strategic volatility quoting, for example with respect to investor demand (Baule, 2011) or competitor entries (Schertler, 2016). It is, however, known that issuers of retail derivatives engage in strategic pricing and thus in strategic volatility quoting, for example with respect to investor demand (Baule, 2011) or competitor entries (Schertler, 2016).…”

“…The previous results suggest that warrant issuers primarily follow the options market regarding volatility information. It is, however, known that issuers of retail derivatives engage in strategic pricing and thus in strategic volatility quoting, for example with respect to investor demand (Baule, 2011) or competitor entries (Schertler, 2016). Since we have shown that issuers rarely FIGURE 3 Over day time (09:15-17:25) averaged issuer volatility time series (ISV) for all nine banks and averaged VDAX time series deviate from options market volatility to incorporate new information, we can attribute any systematic intra-day deviations to strategically intended quoting behavior.…”

Pricing and issuance dependencies in structured financial product portfolios

“…Recent studies (e.g., Baule, 2011;Schertler, 2016) often use the model proposed by Hull and White (1995) to determine SFPs' TVs, as this model considers the issuers' credit risk by assuming that it is independent of market risk. The TV of a put warrant is determined using the pricing model by Cox et al (1979) allowing for early exercise and then discounting the model-implied value with the issuers' credit spread.…”

Warrant price responses to credit spread changes: Fact or fiction?

“…Baule, 2011;Baule & Blonski, 2015;Benet et al, 2006;Chang et al, 2012;Henderson & Pearson, 2011;Schertler & Stoerch, 2015;Stoimenov & Wilkens, 2005;Wallmeier & Diethelm, 2009). An exception is the study by Schertler (2016), who uses difference-in-differences estimations on margins of discount certificates. To analyze when and how issuers change their warrants' prices in response to changes in their CS, we use the following linear regression model:…”