The Relative Performance of Five Alternative Warrant Pricing Models

Shmuel Hauser and Beni Lauterbach

Financial Analysts Journal, 1997, vol. 53, issue 1, 55-61

Abstract: Five warrant pricing models are examined in this study: a pair based on the Black–Scholes model, a pair based on the constant elasticity of variance (CEV) modification, and an extendible-warrant model (à la Longstaff). Based on more than 20,000 warrant price observations, the flexible-exponent CEV model generates the lowest average absolute pricing error in most of the warrants examined. The dilution-adjusted Black–Scholes model, however, remains a reasonable, economical alternative in many cases.

Date: 1997
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DOI: 10.2469/faj.v53.n1.2056

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