The pricing of initial public offerings: An option approach

Sheen Liu; Chunchi Wu; Peter Huaiyu Chen

doi:10.1142/9789812791696_0007

The pricing of initial public offerings: An option approach

Sheen Liu
, Chunchi Wu
, Peter Huaiyu Chen

Finance

Washington State University Vancouver
Youngstown State University

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

Abstract

This chapter proposes a theoretical model of initial public offering by taking into account the uncertainty in security pricing and the underwriting process. Three major factors are shown to affect the IPO pricing: (1) the uncertainty of stock price, (2) the legal requirement that restricts underwriters from selling any part of the issue above the fixed offering price, and (3) the underwriters’ risk tolerance. It is shown that underpricing is negatively related to the underwriter’s risk tolerance, and positively related to the length of premarket period and market price volatility.

Original language	English
Title of host publication	Advances In Quantitative Analysis Of Finance And Accounting (Vol. 6)
Publisher	World Scientific Publishing Co.
Pages	127-141
Number of pages	15
ISBN (Electronic)	9789812791696
DOIs	https://doi.org/10.1142/9789812791696_0007
State	Published - Jan 1 2008

Keywords

Initial public offerings (ipo)
Ipo pricing
Options

Access to Document

10.1142/9789812791696_0007

Cite this

@inbook{f4c9ff11e9ac468f879bbb2cfee4e3da,

title = "The pricing of initial public offerings: An option approach",

abstract = "This chapter proposes a theoretical model of initial public offering by taking into account the uncertainty in security pricing and the underwriting process. Three major factors are shown to affect the IPO pricing: (1) the uncertainty of stock price, (2) the legal requirement that restricts underwriters from selling any part of the issue above the fixed offering price, and (3) the underwriters{\textquoteright} risk tolerance. It is shown that underpricing is negatively related to the underwriter{\textquoteright}s risk tolerance, and positively related to the length of premarket period and market price volatility.",

keywords = "Initial public offerings (ipo), Ipo pricing, Options",

author = "Sheen Liu and Chunchi Wu and Chen, \{Peter Huaiyu\}",

note = "Publisher Copyright: {\textcopyright} 2008 by World Scientific Publishing Co. Pte. Ltd.",

year = "2008",

month = jan,

day = "1",

doi = "10.1142/9789812791696\_0007",

language = "English",

pages = "127--141",

booktitle = "Advances In Quantitative Analysis Of Finance And Accounting (Vol. 6)",

publisher = "World Scientific Publishing Co.",

}

TY - CHAP

T1 - The pricing of initial public offerings

T2 - An option approach

AU - Liu, Sheen

AU - Wu, Chunchi

AU - Chen, Peter Huaiyu

PY - 2008/1/1

Y1 - 2008/1/1

N2 - This chapter proposes a theoretical model of initial public offering by taking into account the uncertainty in security pricing and the underwriting process. Three major factors are shown to affect the IPO pricing: (1) the uncertainty of stock price, (2) the legal requirement that restricts underwriters from selling any part of the issue above the fixed offering price, and (3) the underwriters’ risk tolerance. It is shown that underpricing is negatively related to the underwriter’s risk tolerance, and positively related to the length of premarket period and market price volatility.

AB - This chapter proposes a theoretical model of initial public offering by taking into account the uncertainty in security pricing and the underwriting process. Three major factors are shown to affect the IPO pricing: (1) the uncertainty of stock price, (2) the legal requirement that restricts underwriters from selling any part of the issue above the fixed offering price, and (3) the underwriters’ risk tolerance. It is shown that underpricing is negatively related to the underwriter’s risk tolerance, and positively related to the length of premarket period and market price volatility.

KW - Initial public offerings (ipo)

KW - Ipo pricing

KW - Options

UR - https://www.scopus.com/pages/publications/85115944230

U2 - 10.1142/9789812791696_0007

DO - 10.1142/9789812791696_0007

M3 - Chapter

AN - SCOPUS:85115944230

SP - 127

EP - 141

BT - Advances In Quantitative Analysis Of Finance And Accounting (Vol. 6)

PB - World Scientific Publishing Co.

ER -

The pricing of initial public offerings: An option approach

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this