Pricing Multiple Stock Warrants with Strategic Exercise

This paper mainly investigates the impact large traders have on the optimal exercise strategies for warrants and their values. By exploring a simple method for pricing the outstanding warrants incorporating strategic exercise of the warrants and employing a lattice process for the equity value of the firm, a valuation formulas for multiple warrants is derived. The multiple warrants pricing model not only holds for continuous distributions, but also holds for discrete distributions. The method can easily accommodate other dilutive derivatives on a firm's equity such as convertible bonds and employee stock options.