RT Journal Article SR Electronic T1 Endowment Warrant Valuation JF The Journal of Derivatives FD Institutional Investor Journals SP 91 OP 103 DO 10.3905/jod.1999.319108 VO 7 IS 1 A1 Philip Hoang A1 John G. Powell A1 Jing Shi YR 1999 UL https://pm-research.com/content/7/1/91.abstract AB An important use of derivatives is to rearrange the cash flows on an underlying asset. One reason to do this to reduce the initial investment needed to take a long position in the underlying stock - in other words, to increase leverage. Buying an in-the-money call option is a substitute for buying on margin, for example. But, unlike margin buyers, holders of ordinary calls do not receive the dividend flow from the underlying shares, meaning they do not participate in corporate earnings that are paid out in dividends. Endowment warrants, issued by major banks in Australia and New Zealand, are payout protected calls with maturities of around ten years, that present a way for ordinary investors to make long-term equity investments without either missing out on the dividends or bearing the expense and potential problems of buying on margin. This article describes these new instruments and shows that traditional option valuation models do a good job in pricing them.