Derivatives in Malaysia have proliferated since the first warrant issuance in 1990. Categorized as long-term call options issued by companies on their underlying stock, equity warrants possess the right to purchase the company’s stock at a predetermined price within a stipulated period. At present, the warrant market is one of the important investments involving financial derivatives in the country. In 2012, the Bursa Malaysia’s director reported that Bursa Malaysia, Malaysia’s stock exchange, had achieved well-balanced productivity due to the advancement in derivative sectors and warrants listed. This was apparently due to great Malaysia’s market position induced by many factors, e.g., lower fuel cost and low-priced transportation. For example, in the year 2013, the trading volume of warrants had increased extraordinarily from USD361.60 million to USD704.30 million in 2014.

Moreover, the warrants’ investment had escalated roughly 400% up to USD3590.90 million in the following year. Analysts' investment returns to measure and evaluate a company's ability highlight the essentiality of precision in warrant pricing. As for the investors, a meticulous warrant pricing formula is crucial to accurately ascertain the value of traded products in reducing the potentiality of losses.

Despite the importance of equity warrants in Malaysia, Yip Yen Yen explored in 2017 that equity warrants’ pricing remains an untapped area. The relevant issues include pricing biases, constant volatility, constant interest rates, uncertain mean-reverting, dilution effects, fractional Brownian motion, unobservable variables, and effects of jump-diffusions. This stems from the fact that a major feature of equity warrants is regular fluctuations in asset prices, which are now incredibly difficult to predict with certainty. According to Shokrollahi in his research, the valuation of this type of derivative must be acknowledged to be in an uncertain financial market. Therefore, financial uncertainty has become increasingly essential to defeat through stochastic processes, but it is commonly comprehended to involve a profound mathematical context. A stochastic process is a family of a random phenomenon that represents the evolution in time. It develops in tandem with stochastic calculus tools to solve economic and financial practical problems. At this moment, equity warrants should be priced under stochastic factors in Malaysia and globally to allow the dynamics of randomness into its underlying asset price.

Theoretically, option pricing models are widely used to estimate warrant prices due to several similarities shared between options and warrants. The most celebrated financial model is the Black-Scholes model initiated in 1973 for European pricing options. Currently, the theory of warrant pricing is commonly based upon this option valuation model. However, it is essential to note that warrants have a longer maturity period than options. It is not astonishing that most equity warrants’ pricing problems remain unsolved in financial economics due to many complexities. For example, Razali Haron analyzed the Malaysian warrant market by applying the Black Scholes model and inferred that this model considerably mispriced warrant prices. The period used in the research was inconsistent with the model’s short maturity assumption. Besides that, the accuracy and reliability of the Black Scholes model are questionable since it contains several assumptions which are against the financial reality, including constant volatility and constant risk-free interest rate. Subsequently, the quest for a model that will be better at approximating market prices and produce better fitting than the Black Scholes model prompted researchers to incorporate stochastic volatility together with a stochastic interest rate as a hybrid model.

A multitude of empirical observations proposed different kinds of stochastic volatility-stochastic interest rate hybrid models that may bestow to improve model performance from the literature. Regarding the hybridization of the Heston stochastic volatility and the Cox-Ingersoll-Ross (CIR) stochastic interest rate model, typically, a closed-form pricing formula is attainable for this Heston-CIR model, which is time-saving, especially in calibration procedures. However, the notion is different if the time to maturity is short. The stochastic interest rate does not differ clearly, but longer maturity scenarios certainly led to important shifts in the interest rate. Apart from that, the stochastic volatility models' fundamental properties, e.g., the non-negativity and mean-reverting remain, are not in line with empirical research results. However, the complexity in mathematically evaluating these models and the inadequacy of closed-form solutions made these models not as well accepted, just like the Black Scholes model.

In conclusion, mathematical models in economics and finance comprise vigorous applications of probability theory and differential equations which built the main foundations of stochasticity. Mathematical models of financial instruments have directly and decisively affected financial and economic practices. Notably, this will aid in the advancement in equity warrants pricing. Additionally, the appropriate pricing model for equity warrants can be employed by investors in making decisions during good or poor economic conditions. In this sense, future research may intend to help investors and warrant holders acknowledge the adaptability of stochastic hybrid models in predicting equity warrants pricing formulation.

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