This paper examines how the underwriter’s pricing strategy affects an IPO stock’s offer price and initial return. High offer price often leads to higher fee to underwriters. As an underwriter is often required to support the IPO stock when it is traded below its offer price, the underwriter has an incentive to lower the IPO price to reduce the risk of the price falling. An underwriter tries to maximize its profit, namely its underwriting fee net of expected costs associated with the downside risk. The cost is measured through the value of the put back option that individual investors can exercise when the price falls below a certain level. We estimate a possible optimal price as follows. The underwriter fee schedules are based on the number of shares to be issued and investors’ demand information. Following Lee and Joh (2007), the put back option values are calculated from the stocks’ price risks based on the portfolio variance of matching firms in the same industry. Compared with the price that maximizes the underwriter’s profit based on the above procedure, we estimate whether an offer price is set at a discount or a premium. We also examine whether this discount or premium affects the initial returns of the IPO stocks. Empirical results using Korean IPO stocks show that on average IPO stocks are offered at a discount and that initial rates of return are positively related with discounts.