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.
|Number of pages||13|
|Journal||Journal of Derivatives|
|Publication status||Published - Sep 1999|