The Valuation of Multiple Stock Warrants

Publication Type

Journal Article

Publication Date

6-2003

Abstract

The issue of multiple series of stock purchase warrants by the same firm is an interesting financial structure not just in America, but is common in countries such as Switzerland, Malaysia, and Singapore. This paper derives valuation formulas for multiple series of outstanding warrants. The theoretical warrant prices from this model are compared against existing models. We report a subtle slippage effect and also a cross dilution effect that cause the existing models, such as Galai-Schneller model, to be inappropriate for pricing such classes of multiple warrants. We also provide an example to illustrate the practicality of our model. The Greeks of the model are also derived in this paper. The complexity of multiple warrants could extend to other classes of contingent securities issued by the same firm but with differing expiry terms. [PUBLICATION ABSTRACT]

Discipline

Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Futures Markets

Volume

23

Issue

6

First Page

517

Last Page

534

ISSN

0270-7314

Identifier

10.1002/fut.10079

Publisher

Wiley: 24 months

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