Why are derivative warrants more expensive than options? An empirical study

Gang LI*, Chu Zhang

*Corresponding author for this work

    Research output: Contribution to journalReview articlepeer-review

    19 Citations (Scopus)


    Derivative warrants typically have higher prices than do otherwise identical options. Using data from the Hong Kong market during 2002-2007, we show that the price difference reflects the liquidity premium of derivative warrants over options. Newly issued derivative warrants are much more liquid than options with similar terms. As a result, long-term derivative warrants are preferred by traders who trade frequently. In spite of their higher prices, short-term returns on long-term derivative warrants are, in fact, higher than the hypothetical short-term returns on options. The differences in price and liquidity measures decline as the contracts get closer to maturity.

    Original languageEnglish
    Pages (from-to)275-297
    Number of pages23
    JournalJournal of Financial and Quantitative Analysis
    Issue number1
    Publication statusPublished - Feb 2011

    Scopus Subject Areas

    • Accounting
    • Finance
    • Economics and Econometrics


    Dive into the research topics of 'Why are derivative warrants more expensive than options? An empirical study'. Together they form a unique fingerprint.

    Cite this