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Warrants - Pricing

The popularity of covered warrants has been a recent development within the warrants market. Simultaneously, the market for traditional warrants has declined in importance.

 

A covered warrant enables an investor to buy or sell an underlying asset at a predetermined price. The underlying asset is usually a stock, but can also be a stock index, bond, commodity or other asset.

 

This course will primarily focus upon covered warrant pricing. However, the pricing of traditional warrants will also be considered.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Discuss the factors affecting warrant prices

    Value a covered warrant

    Value a traditional warrant

    Describe the main measures of warrant sensitivity

  • COURSE OUTLINE

    Topic 1: Factors Affecting the Price of a Covered Warrant

    Affecting Factors

    o The underlying stock price

    o The exercise (strike) price

    o Volatility

    o Time to Expiry

    o Dividends

    o Interest Rates

    Intrinsic Value and Intrinsic Time Value

    o Calculating the warrant premium

    o Calculating the intrinsic value of a traditional call and put warrant

    o Calculating the intrinsic value of a covered call and put warrant

    Topic 2: Traditional Warrants

    Pricing Covered Warrants

    o Black-Scholes Model

    Pricing Traditional Warrants

    o At Maturity

    o Before Maturity

    Topic 3: The Greeks

    Delta

    o Delta of a Warrant

    o Delta Range

    o Measuring the rate of change in Warrant Value

    o Delta Hedging

    Gamma

    o Gamma

    o Calculating Gamma

    o Maximum Gamma

    Theta

    o Measuring the change in price of a warrant as time passes

    Vega

    o Measuring the rate of change of warrant price with change in market volatility of the underlying asset

    o Maximum Vega

    Rho

    o Measuring the rate of change in the value of a warrant with change in the risk-free interest rate

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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