What factors affect the price of a warrant?

The price of a warrant generally depends on the price of the underlying asset. However, throughout the term of a warrant, its price will be influenced by a number of other factors, including:

(a) the exercise price of the warrant;

(b) the value and volatility of the price of the underlying asset (being a measure of the issuer’s expectation on the fluctuation in the price of the underlying asset over time);

(c) the time remaining to expiry: generally, the longer the remaining life of the warrant, the greater its value;

(d) the interim interest rates and expected dividend payments or other distributions on the underlying asset;

(e) the liquidity of the underlying asset;

(f) the availability of, and demand for, the warrant;

(g) the issuer’s hedging transaction costs;

(h) the creditworthiness of the issuer and/or its guarantor; and

(i) in case of index warrants, the price and liquidity of the futures contracts relating to such index

Assuming other factors remain unchanged, the theoretical impact of changes in certain key factors above on call and put warrants is illustrated in the table below:

* Please note that the table above only shows the theoretical relationship with the key pricing parameters. In reality, there are other factors affecting the price of a warrant.