I've been making some calculations with the BS formula, and I reach some results that seem strange to me. For example- WFC warrant with a maturity in 6.5 years trade at 8.5, while 1.5 year options trade at almost 4. This seems weird to me, because it assumes that the 1.5 years starting now are worth a big chunk of the warrant price, while in my opinion the years after that are the more valuable ones, because if WFC compounds at 10, the year from year 5 to year 6 is worth a lot more than the year from now. This got me reading about the formula.

Black Scholes' formula assumes stocks move at a random brownian motion with a drift, which is the risk free rate- meaning, the forumula assumes every risk is hedged perfectly, so everything should move at that rate.

Putting aside the formula ignoring the company and its own compounding of its equity, is it logical to make an assumption that the risk free rate is the return for any stock? Maybe it's true for a commodity, but in stocks This seems to me not only a little off, but off by orders of magnitude in the long term.

It seems the WFC warrant pricing closely tracks the Black scholes value for it, so if you assume WFC compounds at 15% or even at 5%, you're seeing something completely different of what a guy pricing with the risk free drift assumption sees. If I could rewrite the formula and assume a specific drift for WFC(the drift doesn't appear in the final formula) I would assume a drift of about 5-10% (to be conservative), which I suspect would change the warrant price by a lot.

Am I understanding BS correcly? Do you think perhaps the risk free drift assumption does make sense?