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In this issue we discuss enhancements made to our
warrants calculator.
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Kynex, Inc.
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Warrants Calculator Enhancements
Over the past eighteen months,
we have seen warrants being issued with new features. The most notable
feature is protection from increases in future dividends on the underlying
common stock (Dividend Protection). We
have also seen warrants that can be terminated if the underlying common stock
exceeds a pre-set trigger (Provisionally Callable). We have enhanced our warrants calculator to
accommodate these features. You can
also maintain custom volatility surfaces for stocks to be applied in valuing
warrants.
Dividend
Protection
Our warrants calculator
projects future expected shares per warrant when the actual dividend on the
common stock and/or your future expected dividends increase beyond a pre-set
threshold in the warrant contract. Therefore, the valuation of the warrants
and the calculation of risk measures are accurate allowing you to setup
trades to capture your dividend expectations in an effective manner.
Provisional
Calls
We incorporate the probability
of early termination in our valuation based on your volatility assumptions
and stock price level. We also look back at the stock price history and take
into account the number of days the stock price has exceeded the trigger.
Hence, the valuation of warrants and especially the Delta is very precise
allowing you to hedge your warrants appropriately.
Volatility
Surface
You can value a warrant based
on a surface of volatilities specified by you as opposed to a single flat volatility.
The specification of the volatility surface can be along expiration as well
as along strike (money-ness). The ability to precisely value warrants,
especially long dated ones based on your volatility expectations allows you
to come up with effective trading strategies.
COMPLETE ARTICLE
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