A Note on "Equilibrium Warrant Pricing Models and Accounting for Executive Stock Options"
指出Noreen和Wolfson在应用权证定价模型时犯了两个错误：低估了股票回报率标准差，且无需额外稀释调整，导致权证价格被低估。
Noreen and Wolfson [1981] present and test two models for valuing warrants. The models are basically options-pricing models, adjusted for the dilution factor associated with the potential exercise of warrants and the resulting increase in the number of outstanding shares. The first model is based on the Black and Scholes [1973] option-pricing model which assumes a log-normal distribution for stock prices. The second model is based on the Cox model for a constant elasticity of variance (CEV) diffusion process (see Cox and Ross [1976]). Comparing the estimated values of warrants based on the models to actual warrants' prices almost uniformly produced negative mean errors.' In this note I show that two errors were committed in applying the models to actual market data. First, the standard deviation estimated from the time series of the rate of return for the stock is underestimated due to the effect of the potential dilution on equity itself. Second, since the equity price in a firm with warrants should reflect the potential dilution, there is no need for a specific dilution adjustment. These two errors lead to underestimation of estimated warrant prices and, therefore, to negative mean error.