Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
481774 | European Journal of Operational Research | 2010 | 8 Pages |
Abstract
In this paper, we introduce a valuation model of callable warrants under a setting of the optimal stopping problem between the holder (investor) and the issuer (firm). A warrant is the right to purchase new shares at a predetermined price. When the new stocks are issued, the value of the stock is diluted. We consider the model taking the dilution into account. After identifying optimal policies for the issuer and the investor, we explore the analytical properties of the optimal exercise and call boundaries for the holder and the issuer, respectively. Furthermore, the value of such a callable warrant and the optimal critical prices are examined numerically using the binomial method.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Kyoko Yagi, Katsushige Sawaki,