Warrant calculation

[quovadis]

Can anyone or Simon help. Is there a way that one can work out the price of a knockout warrant relative to a future fixed projected level of the index?

[ACEP_]

quovadis, I have copied an old post of mine which I hope will help you. I pondered over the same thing for a while. You may speak to Naven (0800 11 780) He explained to me how to calculate fair value on a KO. eg. TOPSKQ. KO Barrier 24,5k less TOPI Spot of (assume) 23,295. For Puts deduct 295 points and calls add 295 points (295 pnts a constant due to Market Maker hedging against Top40 futures, cost of finance less dividends to expiry). Therefore 24,5k - (23,295 - 295 = 23k) divided by Cover ratio ie. 5k = 30c = fair value! Simple once you know how! I note the 295 pnts reduces the closer to expiry.

[quovadis]

Thanks very much for the help. Will try and create a spreadsheet to do the necessary.

[ACEP_]

Ya, I still wonder why there is no matrix. No time decay? OK I will park the issue...... good luck with your spreadsheet!

[SimonPB]

thee is time decay, but it is linear ..

[quovadis]

Thanks Simon. As regards the spreadsheet I thought I'd hand it to my daughter's 8 year old.