Abstract
AbstractEvaluating more than 317,000 discount certificates in the German secondary market, we find that premiums and spreads are endogenous and negatively related but depend on different key determinants. The fundamental determinants of the premiums are mainly profit‐related, that is, dividends of the underlying, issuers’ credit risk, lifecycle effect, and competition, whereas hedging costs are less important. However, initial hedging costs (IHC) are priced into the premium in the case of large inventory changes. The spread is mostly determined by hedging costs and risk components, such as IHCs, rebalancing costs, volatility, scalper risk, and overnight gap risk—but also by dividends.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
