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Bridge over ocean
1 January 1997 Financial Analysts Journal Volume 53, Issue 1

The Relative Performance of Five Alternative Warrant Pricing Models

  1. Shmuel Hauser
  2. Beni Lauterbach

Five warrant pricing models are examined in this study: a pair based on the Black–Scholes model, a pair based on the constant elasticity of variance (CEV) modification, and an extendible-warrant model (à la Longstaff). Based on more than 20,000 warrant price observations, the flexible-exponent CEV model generates the lowest average absolute pricing error in most of the warrants examined. The dilution-adjusted Black–Scholes model, however, remains a reasonable, economical alternative in many cases.

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