Stock option warrant analysis
Fitch, David Atwood
Carrick, Paul M.
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The following is an analysis of stock option warrants from the investor point of view. A survey of the literature presents the forms of analysis used to date. A model is call the Fitch model, for reasons of humility, which will explain warrant value in terms of associated stock variability, yield, leverage, and potential common stock dilution. Time to expiration of the warrant is discounted by considering only warrants with more that seven years until expiration. The analysis also presents two other models, Kassouf's and a linear regression, as a basis for comparison. The conclusions are that the Kassouf model is both heteroscedastic and first order autocorrelated and could not support other analysis without modifying its structure. Of the two remaining models the linear model yields superior predictions as measured by its standard error. It is also felt that a more representative sample of warrants may significantly change the results given here.
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