However, it is important to have some understanding of the various influences on warrant prices. The market value of a warrant can be divided into two components - intrinsic value and time value. Intrinsic value Intrinsic value is the difference between the exercise price of the warrant and the current price of the underlying asset. It is always greater than or equal to zero.
Time value declines as the expiry of the warrant draws closer.
This erosion of time value is called time decay. It is not constant, but increases rapidly towards expiry. Time to expiry - the longer the time to expiry, the greater the time value of the warrant. Volatility - the more volatile the underlying instrument, the higher the price of the warrant will be, all other things being equal. Interest rates - an increase in interest rates will lead to more expensive call warrants and cheaper put warrants, all else being equal.