Public and private warrants of a SPAC post merger (Initial Business Combination or IBC) are often very similar. Notable differences are 1) cashless exercise of the private warrants and 2) redemption feature of the private warrants.

  1. Cashless exercise: The warrants can be exercise in either cash (pay strike of 11.5, get one share) or cash-lessly - get $N_S$ shares without any money to be put up as follows:

$$N_S = \frac{N_W (P_{10Avg} - K)}{P_{10Avg}}$$

Where $P_{10Avg}$ is the average price for the last 10 days. The public warrants don't provide for the cashless exercise.

  1. Redemption feature. The issuer of of the warrants (the company) can redeem the warrants for $0.10 if the stock price is between \$10 and \$18. The public warrants do not have the \$18 cap. This feature is designed to force the warrant holders to exercise as at any time the stock price is above \$11.6 (11.5 + 0.1) the holder will be better off exercising (which they have 30 days to do) than having the company redeem.

How would one model these features? Do I need two separate trees or MCs for cash and cashless exercise? How does the redemption feature fit in? Some kind of barrier?



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