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ON USING THE BLACK-SCHOLES MODEL TO VALUE WARRANTS
Authors:David C Leonard  Michael E Solt
Abstract:In this paper ad hoc procedures that employ the Black-Scholes model in the valuation of warrants are examined. Findings indicate that the Black-Scholes model unadjusted for either dividends or dilution undervalues out-of-the-money warrants with short expirations. An adjustment for dilution improves the valuation for longer-term warrants of firms that do not pay dividends. For dividend-paying firms, findings suggest that it is better to adjust for dividends than for dilution when warrants are in the money or have expirations exceeding four years.
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