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The valuation of multiple stock warrants

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  • Kian‐Guan Lim
  • Eric Terry

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

Suggested Citation

  • Kian‐Guan Lim & Eric Terry, 2003. "The valuation of multiple stock warrants," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(6), pages 517-534, June.
    • Handle: RePEc:wly:jfutmk:v:23:y:2003:i:6:p:517-534
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    Cited by:

    1. Xiao, Weilin & Zhang, Xili, 2016. "Pricing equity warrants with a promised lowest price in Merton’s jump–diffusion model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 458(C), pages 219-238.
    2. Zhou, Qing & Zhang, Xili, 2020. "Pricing equity warrants in Merton jump–diffusion model with credit risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 557(C).

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