✦ LIBER ✦

The valuation of multiple stock warrants

✍ Scribed by Kian-Guan Lim; Eric Terry

Publisher: John Wiley and Sons
Year: 2003
Tongue: English
Weight: 132 KB
Volume: 23
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.10079

No coin nor oath required. For personal study only.

✦ Synopsis

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. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark
23:517–534, 2003

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