Custom Analytics provides a Microsoft Excel add-in program that allows you to value SPAC warrants using custom functions.

Here are some of features of this add-in:

  • SPAC Warrants with up-and-out barrier feature using Monte Carlo Simulation

Warrant Description
There has been a large increase in the creation of Special Purpose Acquisition Corporations (SPACs) over the last few years. SPAC units are usually issued as shares in the corporation and a warrant to purchase additional shares.

These warrants usually have a soft call feature where the warrant has an exercise price and a barrier hurdle. The condition is triggered if the SPAC’s closing price exceeds a specific barrier price (typically $18.00) for a set number of days out of a set number of days. This “m out of n” (MooN) condition is usually set at 20 out of 30 days. If the condition is triggered, the issuer can convert the warrant into a short term European option (usually 30 days).

Valuation Modeling
FinTools offers custom applications that use a very efficient Monte Carlo Simulation to calculate the theoretical value and greeks of a SPAC warrant with a soft call provision. The modeling is based on the research by Qiang Liu and Shiuxin Guo in the seminal paper “An excellent approximation for the m out of n day provision“.

Monte Carlo (MC) Simulation is superior to other approximations, such as Finite Difference or binomial, because it has the ability to keep track of the order of the outcomes. Consider a case where the number of days the stock price has been above the barrier is 19. Consider these cases:
a) The stock price has exceeded the barrier in the last 19 trading days; or
b) Those 19 days have been occurring throughout the last 30 days (could be at the beginning of the period, 11 days ago).
Cases a and b are clearly different. The MC method will differentiate between them while many other approximations will not.

Calculation Results
Based on your input parameters, the software will calculate the theoretical value, delta, vega, theta, and the estimated time to fulfill the barrier condition for these warrants. A sample calculation is provided below.

Software Delivery
The usage of this software package is incredibly flexible.

This model is available as a custom function as an Excel Add-In, and can also be used in development projects.

Whether you prefer the familiar user interface of Excel, the data-intensive power of SQL Server, or seamless integration into your own .NET applications, your experience will feel effortless.

Licensing
The software is available as a month-to-month subscription or on an annual lease basis.