BROWSE

Warrant Premium

What is 'Warrant Premium'

The amount that an investor must pay above the current market price for a security, when purchasing and exercising a warrant. The warrant premium represents the cost of purchasing a share through the warrant, compared to buying the share directly through the open market.


It is calculated as:


[(warrant price + exercise price - current share price) / current share price] * 100


For example, an investor holds a warrant with a price of $10 and an exercise price of $25. The current share price is $30. The warrant premium would be [($10+$25-$30)/$30]*100 = 16.7%.

Explaining 'Warrant Premium'

Warrants have both a price and premium. Typically, the premium will decrease as the price of the warrant rises and the time to expiration decreases. A warrant is in the money when the exercise price is less than the current share price. The more in the money the warrant is, the lower the warrant premium is. High volatility can also cause the warrant premium to be higher.





Further Reading


Evidence on the issuer effect in warrant overpricing
www.tandfonline.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Impact of warrant introductions on the behaviour of underlying stocks: Australian evidenceImpact of warrant introductions on the behaviour of underlying stocks: Australian evidence
onlinelibrary.wiley.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

The Chinese warrants bubbleThe Chinese warrants bubble
www.aeaweb.org [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Warrants pricing: stochastic volatility vs. Black–ScholesWarrants pricing: stochastic volatility vs. Black–Scholes
www.sciencedirect.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Warrant introduction effects on stock return processesWarrant introduction effects on stock return processes
www.tandfonline.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

The Operation of the Modern FinancialThe Operation of the Modern Financial
books.google.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Warrant pricing—Is dilution a delusion?Warrant pricing—Is dilution a delusion?
www.tandfonline.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Why are derivative warrants more expensive than options? An empirical studyWhy are derivative warrants more expensive than options? An empirical study
www.cambridge.org [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …

Robustness of option-like warrant valuationRobustness of option-like warrant valuation
www.sciencedirect.com [PDF]
… Warrants command higher premiums than similar exchange traded options … Panel B reports selected correlations among the alternative measures of the excess warrant premium. Panel A provides strong evidence that warrants typically trade at higher prices than matched option …



Q&A About Warrant Premium


Why would volatility cause a higher warrant premium?

High volatility causes investors to have more uncertainty about future prices. This makes them less likely to purchase warrants. Therefore, they are willing to pay more for them.

How is the warrant premium calculated?

[(warrant price + exercise price - current share price) current share price] * 1

What does it mean to be in-the-money?

A warrant is in-the-money when its exercise value exceeds its strike value.

What is the definition of a warrant premium?

The amount that an investor must pay above the current market price for a security, when purchasing and exercising a warrant.

Leave a Reply

Your email address will not be published. Required fields are marked *