Definition
In the context of insurance and finance, a warrant is an agreement that grants the holder the right, but not the obligation, to buy an underlying financial instrument at a set price within a specific time frame. This could relate to stocks, bonds, or other financial securities featured as part of investment mixes in variable insurance products.
Characteristics of Warrants
Exercise price: The fixed price at which the warrant can be exercised.
Expiration date: The date after which the warrant can’t be exercised and becomes void.
Premium: Warrants are often traded at a premium, reflecting the cost to acquire the warrant.
Underlying asset: Typically a share or bond whose purchase is made possible by the warrant.
Legal Framework and References
Warrant agreements in the insurance sector are guided by financial securities laws and regulations. It is important to refer to government standards like the Securities Exchange Act, which lays down rules for trading similar financial instruments.
