Endowment warrant valuation

Philip Hoang, John G. Powell, Jing Shi

Research output: Contribution to journalArticle

2 Citations (Scopus)

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 languageEnglish
Pages (from-to)91-103
Number of pages13
JournalJournal of Derivatives
Volume7
Issue number1
DOIs
Publication statusPublished - Sep 1999
Externally publishedYes

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