This article will introduce us to the pricing and risk of structured warrants. It will show how the price of a warrant relates to the underlying share and identify significant features that contribute to the valuation of a warrant. It will also stress some important risk aspects that investors must be aware of.
How the price of a warrant relates to the underlying share?
Generally, a warrant’s price is closely connected to the behaviour of the underlying share. By behaviour, we mean bow volatile the underlying share is and whether it is moving in a favourable direction for the warrant holder.