Abstract
Endowment warrants are long-term call options with an exercise price that is reduced whenever dividends are paid on the options' underlying shares, so that over the decade-long life of the option the exercise price could fall to zero if anticipated share dividend growth occurs. This article derives a simple closed-form formula for valuing endowment warrants, and outlines why endowment warrants can be ideal instruments for implementing longterm investment strategies when investors have limited financial resources and flexibility.
Original language | English |
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Pages (from-to) | 91-103 |
Number of pages | 13 |
Journal | Journal of Derivatives |
Volume | 7 |
Issue number | 1 |
DOIs | |
Publication status | Published - Sept 1999 |
Externally published | Yes |