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The valuation of multiple stock warrants
Author(s) -
Lim KianGuan,
Terry Eric
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10079
Subject(s) - warrant , valuation (finance) , economics , stock (firearms) , greeks , financial economics , econometrics , actuarial science , finance , engineering , mechanical engineering
The issue of multiple series of stock purchase warrants by the same firm is an interesting financial structurenot just in America, but is common in countries such as Switzerland, Malaysia, and Singapore. This paper derivesvaluation formulas for multiple series of outstanding warrants. The theoretical warrant prices from this model arecompared against existing models. We report a subtle slippage effect and also a cross dilution effect that causethe existing models, such as Galai‐Schneller model, to be inappropriate for pricing such classes of multiplewarrants. We also provide an example to illustrate the practicality of our model. The Greeks of the model are alsoderived in this paper. The complexity of multiple warrants could extend to other classes of contingent securitiesissued by the same firm but with differing expiry terms. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark23:517–534, 2003