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Time value (warrants)

Time value (warrants)One of the components of a warrant premium; i. e. the difference between the price of a warrant and its intrinsic value.

The time value of a warrant reflects the probability that the price of the underlying instrument will fluctuate during the exercise period. It is thus a type of "uncertainty premium".

The time value is calculated on the basis of the remaining time to expiration and the volatility of the underlying instrument. It is used to determine the value of a warrant. The less time remaining to expiration, and the lower the volatility of the underlying value, the lower the time value will be. The time value is zero on the expiration date, at which point the value of the warrant is equivalent to its intrinsic value.

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