The fair value of a warrant is the best estimate of its worth using a set of relevant inputs at a given point in time over its maturity. Similar to calculation of the fair value of an option, the fair value of a warrant might be estimated using option pricing models, involving a set of assumptions and inputs. Essentially, the fair value of a warrant depends on the underlying share price in the same way as the value of an ordinary option, with everything else held constant.
The theoretical fair value of a warrant can be calculated using one the methods based on the Black-Scholes model (without dividends). Such a model best suits equity call warrants (European and American-style) and European-style equity put warrants. Sensitivity coefficients “Greeks” are usually adjusted in order to account for the conversion ratio of the warrant.
The main inputs for value calculation are share price, time to maturity, interest rate and volatility.
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