Show simple item record

dc.contributor.authorDarsinos, Theofanisen_GB
dc.contributor.authorSatchell, Stephen E.en_GB
dc.date.accessioned2004-06-16T16:05:12Z
dc.date.available2004-06-16T16:05:12Z
dc.date.created2002-06en_GB
dc.date.issued2004-06-16T16:05:12Z
dc.identifier.urihttp://www.dspace.cam.ac.uk/handle/1810/314
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/314
dc.description.abstractThis paper sets out to provide a risk-management tool (namely the distribution of the stock price of a warrant-issuing firm) and at the same time resolves an outstanding issue between the theory and the empirical evidence of the warrant pricing literature. In their seminal article on warrant pricing, Galai and Schneller (1978) make the following statement: ��if the distribution of the firm�s liquidation value is lognormal, the value of its share price is not lognormally distributed�. On the other hand recent empirical studies suggest that assuming lognormality for the stock price distribution of a warrant-issuing firm gives a very good approximation for the value of a warrant (this is the so-called �option-like� warrant valuation approximation). We show that despite of the fact that the (risk-neutral) distribution of a warrant-issuing firm and a non-warrant issuing firm is different, valuation by taking expectations of the discounted payoff of the warrant over the two different risk-neutral distributions produces warrant prices very close to each other for a large number of cases. Exceptions occur for deep-out-of-the-money and close to maturity out-of-the-money warrants in general. In such cases the �option-like� approximation will significantly overprice warrants.en_GB
dc.format.extent197332 bytes
dc.format.mimetypeapplication/pdfen_GB
dc.format.mimetypeapplication/pdf
dc.language.isoen_GB
dc.publisherFaculty of Economics
dc.relation.ispartofseriesCambridge Working Papers in Economics
dc.rightsAll Rights Reserveden
dc.rights.urihttps://www.rioxx.net/licenses/all-rights-reserved/en
dc.subject.classificationClassification-JEL: G12, G13en_GB
dc.subject.otherwarrants, executive stock options, risk-neutral, distributionen_GB
dc.titleThe Implied Distribution for Stocks of Companies with Warrants and/or Executive Stock Optionsen_GB
dc.typeWorking Paperen
dc.identifier.doi10.17863/CAM.5014


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record