Warrant Pricing Using Unobservable Variables

Posted: 5 Nov 2003

Abstract

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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