This paper investigates the warrant pricing abilities of dilution-adjusted versions of the Black-Scholes and Jump-Diffusion option pricing models. Because of the typically long lives of warrants, their pricing is hypothesized to benefit from use of the Jump-Diffusion model, which relaxes the Black-Scholes restriction against stock price jumps. Empirical results indicate that while the Black-Scholes model almost uniformly provides more efficient estimates, the Jump-Diffusion model generally provides less biased estimates of market value. Particularly for the valuation of out-of-the-money warrants and warrants on stocks with a history of large and/or frequent jumps, the Jump-Diffusion model may be preferred.

Several studies indicate the presence of large abnormal returns accruing to shareholders of merged firms in the period immediately before the merger. For example, Mandelker [18] reports that stockholders of acquired firms earn abnormal returns of approximately 14 percent in the seven months preceding merger. Franks, Broyles, and Hecht [15] find abnormal returns of 26 percent for British firms during the four months prior to merger; Elgers and Clark [11] report 43 percent abnormal returns accruing over two years before merger to shareholders of acquired firms.

Rodney L. Roenfeldt, Gary L. Griepentrog, Christopher C. Pflaum, Further Evidence on the Stationarity of Beta Coefficients, The Journal of Financial and Quantitative Analysis, Vol. 13, No. 1 (Mar., 1978), pp. 117-121