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.
- 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.
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.
- 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.
- 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.
- 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.