Warrant Pricing Using Observable Variables

15 Pages Posted: 17 Oct 2003

Date Written: August 14, 2003


The classical warrant pricing formula requires knowledge of the variance of the firm value process, and the firm value. When warrants are outstanding the firm value itself is a function of the warrant price. Firm value and the variance of the firm value are then unobservable variables. I develop an algorithm for pricing warrants using stock prices, an observable variable, and variance of stock returns. The method also enables estimation of the variance of firm value. A proof of existence of the solution is provided.

JEL Classification: G13, G63

Suggested Citation

Ukhov, Andrey, Warrant Pricing Using Observable Variables (August 14, 2003). Available at SSRN: https://ssrn.com/abstract=452101 or http://dx.doi.org/10.2139/ssrn.452101

Andrey Ukhov (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

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