Premium/Gearing Ratio
Premium (3) (United Kingdom definition) divided by gearing. Often used in the United Kingdom warrant market as a rough indication of the attractiveness of a warrant. Unfortunately, many of the major determinants of warrant value such as volatility, interest rates, dividend yields, and even the extent to which the warrant is in or out of the money are ignored or seriously distorted by this calculation. In the diagram with the definition of gearing, the relationship between the premium (3) line and the gearing line when the warrant is in the money indicates that the premium/gearing ratio is sensitive to the life of the warrant and the level of interest rates. See also Gearing (diagram).
|
