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Page 1

Other books by EDWARD O. THORP

Elementary Probability

Beat the Dealer

Other books by SHEEN T. KASSOUF

Evaluation of Convertible Securities

A Theory and an Econometric Model

for Common Stock Purchase Warrants

Page 114

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Page 115

rity, explaining that it wished to protect us (against our wishes) from Òspeculation.Ó Another

house refused to short over-the-counter securities selling under $3, or any warrants. When

pressed, they admitted it was annoying to borrow them. Over-the-counter securities tend to

be concentrated in fewer hands, making it harder to locate certificates to borrow. Also, if the

lender wants his certificates returned, there is greater risk that replacements will not be avail-

able, causing you to be bought-in against your wishes.

When you use the basic system for over-the-counter warrants, it is advisable to invest

comparatively small sums, and to follow developments closely. It in addition to the warrant,

the common stock is also traded over-the-counter, your percentage profit will be reduced

because over-the-counter stocks cannot be purchased on margin through your broker. Basic-

system positions involving over-the-counter stocks and warrants therefore require a greater

cash investment than comparable situations with listed securities. If the stock is listed and

can be purchased on margin, then over-the-counter warrants can be as attractive as listed war-

rants.

We also emphasize that the theory of Chapter 6, particularly the use of Figure 6.3, was

based on experience with AMEX listed warrants. Experience with other warrants could be

less favorable.

We know at present of no special difficulties in trading warrants on the Toronto

Exchange. However, you cannot legally exercise certain of these warrants, and you may need

to emphasize to your broker that you understand this, before he will take your order.

When Canadian warrants are exercised by U.S. residents, the additional securities

issued are new shares. They must be registered with the Securities and Exchange

Commission by the com-

108

Page 229

ABOUT THE AUTHORS

EDWARD O. THORP

is the author of the best-seller Beat the Dealer: A Winning Strategy for the Game of Twenty-

One, published by Random House in 1962 and in revised form in 1966. It presented the first sci-

entific winning system ever devised for a major casino gambling game. He has also written

Elementary Probability (1966) and numerous mathematical papers on probability, game theory,

and functional analysis.

He completed undergraduate and graduate work at U.C.L.A., receiving the B.A. and M.A. in

physics, and the Ph.D. in mathematics in 1958. He has taught at U.C.L.A., M.I.T., New Mexico

State University, and is now Professor of Mathematics at the University of California at Irvine.

He acts as investment counselor for selected clients.

S. T. KASSOUF,

Assistant Professor of Economics at the University of California at Irvine, completed his under-

graduate work in mathematics and graduate work in economics at Columbia University and

received the Ph.D. in 1965. His dissertion involved an econometric model for common stock pur-

chase warrants and was under the sponsorship of Arthur F. Burns. He is the author of Evaluation

of Convertible Securities, published by Analytic Investors, Inc., an investment advisory firm. He

served as editor and investment counselor for this organization, from its inception in 1962 until

1965. He acts as investment counselor for selected clients.

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