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Theoretical warrant price calculators

The following calculators (provided by Peter Hoadley's web site) may be used to calculate the theoretical fair value for warrants. There are two models - the Black-Scholes model and the binomial model, which are used under different circumstances. 

Black-Scholes model without dividends

  • Best to be used for Equity Call warrants (European and American-style) and European-style Equity Put warrants.
  • Sensitivity coefficients "Greeks" are adjusted for the conversion ratio of the warrant.
  • Provides the ability to analyse the various measures (sensitivity coefficients) by 4 different factors like share price, time to maturity, interest rate and volatility.
  • The results are shown graphically.

Black-Scholes model with dividends

This tool may be used to calculate theoretical fair value prices of Equity warrants where the stock pays a dividend during the life of the warrant.

European-style warrants

  • May be used to calculate prices for Equity Call and Put warrants.
  • Specify the dollar amount of the dividend and the expected ex-dividend date.
  • The sensitivity coefficients (Greeks) are already adjusted for the conversion ratio.
  • Again the results are shown graphically.

American-style warrants

  • May be used to calculate an approximate value for American-style call warrants.
  • Calculate the warrant price based on the expiry date. Redo the calculation with the expiry date being the business day just prior to the stock going ex-dividend. The higher price is usually a good estimate for the theoretical fair value. 
  • American-style put warrants should not be valued using the Black-Scholes model.

Binomial model

  • You can use the binomial model to value American and European style warrants.
  • This model does not provide you with a detailed analysis of the sensitivity coefficients.

 

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