warranten

Warranten are a type of financial derivative that give the holder the right, but not the obligation, to acquire or dispose of a specified amount of an underlying asset at a predetermined price within a defined period. They are typically linked to equities but can be issued on indices, commodities, or other assets. Warrants are usually issued by a company or a financial institution, rather than being standardized and traded as exchange-listed options.

Key features include long maturities, often several years, and terms that can be customized by the issuer. They may be settled by physical delivery of the underlying shares or by cash settlement. Exercise styles can be European (only at expiration) or occasionally American (any time before expiration). When warrants are exercised, new shares are often issued by the issuer, which can dilute existing shareholders.

Pricing and valuation are influenced by the current price of the underlying, the strike (exercise) price, time to expiration, volatility, interest rates, and expected dividends. Because warrants are typically long-dated and may involve issuer credit risk and potential dilution, pricing models differ from those used for exchange-traded options and may include an explicit premium for issuer risk.

Warrant structures vary: traditional warrants issued by a company, and covered warrants issued by banks where the bank hedges the exposure. Warrants can be listed and traded on exchanges, though liquidity varies, and some are traded OTC. Uses include raising capital for issuers, offering investors leveraged exposure, or facilitating corporate actions such as acquisitions. Risks for investors include issuer default risk, dilution, limited liquidity, and the complexity of the instrument.