The relative performance of five alternative warrant pricing models

Shmuel Hauser, Beni Lauterbach

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

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.

Original languageEnglish
Pages (from-to)55-61
Number of pages7
JournalFinancial Analysts Journal
Volume53
Issue number1
DOIs
StatePublished - 1997

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