A Model for Estimating the Cancellation Probabilities of TARP Warrants

Advances in Accounting Finance and Economics, Vol. 3, No. 1, pp. 1-15, 2010

20 Pages Posted: 4 Jun 2009 Last revised: 15 Apr 2012

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: December 31, 2009

Abstract

Under the Capital Purchase Program (CPP), U.S. taxpayers hold warrants issued by over 270 publicly traded banks. The provisions of the CPP allow for half of the warrants to be cancelled if the recipient bank issues enough preferred or common stock by the end of 2009. This paper develops a model to estimate the probability of a qualified equity issuance that is consistent with standard option pricing techniques. The model is based on the transaction costs of issuing new equity and can be solved numerically.

Keywords: bailout, banks, banking, Capital Purchase Program, Emergency Economic

JEL Classification: G01, G13, G21, G28, G32, G38

Suggested Citation

Wilson, Linus, A Model for Estimating the Cancellation Probabilities of TARP Warrants (December 31, 2009). Advances in Accounting Finance and Economics, Vol. 3, No. 1, pp. 1-15, 2010. Available at SSRN: https://ssrn.com/abstract=1413442 or http://dx.doi.org/10.2139/ssrn.1413442

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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