Pricing levered warrants with dilution using observable variables
Isabel Abinzano () and
Javier Navas ()
Quantitative Finance, 2013, vol. 13, issue 8, 1199-1209
We propose a valuation framework for pricing European call warrants on the issuer’s own stock that allows for debt in the issuer firm. In contrast to other works that also price warrants with dilution issued by levered firms, ours uses only observable variables. Thus, we extend the models of Crouhy and Galai [ J. Bank. Finance , 1994, 18 , 861--880] and Ukhov [ J. Financ. Res. , 2004, 27 (3), 329--339]. We provide numerical examples to study some implementation issues and to compare the model with existing ones.
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