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The impact of issuing warrant and debt on behavior of the firm's stock

  • Xiao, Wei-Lin
  • Zhang, Wei-Guo
  • Yao, Zheng
  • Wang, Xiao-Hui
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    Unlike options, warrant issuance changes the distribution of the stock price process. Indeed, firms issuing warrants are also debt financed. In this situation, it is natural to consider the distribution of the stock price process for a firm, which is debt–warrant combination. This paper is devoted to provide a risk-management tool, namely the stock price distribution of a firm issuing both debt and warrants. We also apply the theoretical results to the risk-management. Moreover, some empirical studies are given to illustrate the impact of issuing warrants and debt on the stock price distribution. The empirical evidence confirms the theoretical findings and shows that issuing warrants and debt has effects on the distribution of stock price processes.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 31 (2013)
    Issue (Month): C ()
    Pages: 635-641

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    Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:635-641
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    17. Xiao, Weilin & Zhang, Weiguo & Xu, Weijun & Zhang, Xili, 2012. "The valuation of equity warrants in a fractional Brownian environment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1742-1752.
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