Warrant Pricing Using Unobservable Variables

Posted: 5 Nov 2003


The classical warrant pricing formula requires knowledge of the firm value and the variance of the firm value process. 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.

Suggested Citation

Ukhov, Andrey, Warrant Pricing Using Unobservable Variables. Available at SSRN: https://ssrn.com/abstract=459340

Andrey Ukhov (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

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