What is ‘Naked Warrant’
A warrant that is issued without a host bond. A naked warrant allows the holder to buy or sell a particular financial instrument, such as a bond or shares, but unlike a normal warrant, it is not sold with an accompanying bond. Naked warrants are typically issued by banks or other financial institutions that are not also issuing a bond, and can be traded in the stock market.
Explaining ‘Naked Warrant’
Normal warrants are issued with an accompanying bond (a warrant-linked bond), giving the investor holding the warrant the right to exercise it and acquire shares of the company that issued the underlying bond. The company writing the bond is typically the same company issuing the underlying bond. Naked warrants, on the other hand, can be backed by a variety of underlying investments, including stocks, and are considered more flexible.
Further Reading
- Aa adequate" financial architecture'for new economy firms – www.inderscienceonline.com [PDF]
- Warrant economics, call-put policy options and the fallacies of economic theory – papers.ssrn.com [PDF]
- Issuers' credit risk and pricing of warrants in the recent financial crisis – www.emerald.com [PDF]
- Warrant pricing: a review of empirical research – www.tandfonline.com [PDF]
- Warrant price responses to credit spread changes: Fact or fiction? – www.sciencedirect.com [PDF]
