Leverage (Warrant)

Leverage (Warrant)

The current price of the underlying instrument divided by the price of a warrant related to the underlying instrument.

The leverage is meant to express  how much stronger the value of an investment in a warrant rises (falls) theoretically than if the same sum was invested in the underlying instrument, if the price of the underlying instrument rises (falls) by one unit. This simple leverage calculation is based on the erroneous assumption that the price of the warrant and the underlying instrument change by the same absolute amount. Therefore, the refined leverage is calculated by multiplying the leverage by the omega. The result is often termed elasticity or leverage.