advanced corporate finance
LYON | SHANGHAI
EDUCATING ENTREPRENEURS FOR THE WORLD
ADVANCED CORPORATE FINANCE
BELZE Loïc
Financial Options
Lecture 7 – Chapter 20
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 1
www.em-lyon.com
© EMLYON School
EMLYON Business 2011
Chapter Outline
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20.1 – Option Basics
20.2 – Option Payoffs at Expiration
20.3 – Put-Call Parity
20.4 – Factors Affecting Option Prices
20.5 – Exercising Options Early
20.6 – Options and Corporate Finance
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 2
EMLYON Business School
Learning Objectives
1. Define the following terms: call option, put option, exercise price, strike price, exercising the option, expiration date, American option,
European option, in-the-money, and out-of-the-money.
2. Compute the value of a call or a put option at expiration.
3. List the rights and obligations of the buyer of the option and the seller of the option.
4. Use put-call parity to solve for the call premium, the put premium, the stock price, the strike price, or the dividend.
5. Discuss the following factors that influence call and put option values: stock price, strike price, and volatility.
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 3
EMLYON Business School
1
Learning Objectives
6. Describe arbitrage bounds for option prices.
7. Explain why it is never optimal to exercise an American call option early on a non-dividend-paying stock, and why it is sometimes optimal to exercise an American put option early.
8. Explain the use of option modeling to value equity.
9. Describe how corporate debt can be viewed as a portfolio of riskless debt and a short position in a put option.
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 4
EMLYON
EDUCATING ENTREPRENEURS FOR THE WORLD
ADVANCED CORPORATE FINANCE
BELZE Loïc
Financial Options
Lecture 7 – Chapter 20
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 1
www.em-lyon.com
© EMLYON School
EMLYON Business 2011
Chapter Outline
•
•
•
•
•
•
20.1 – Option Basics
20.2 – Option Payoffs at Expiration
20.3 – Put-Call Parity
20.4 – Factors Affecting Option Prices
20.5 – Exercising Options Early
20.6 – Options and Corporate Finance
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 2
EMLYON Business School
Learning Objectives
1. Define the following terms: call option, put option, exercise price, strike price, exercising the option, expiration date, American option,
European option, in-the-money, and out-of-the-money.
2. Compute the value of a call or a put option at expiration.
3. List the rights and obligations of the buyer of the option and the seller of the option.
4. Use put-call parity to solve for the call premium, the put premium, the stock price, the strike price, or the dividend.
5. Discuss the following factors that influence call and put option values: stock price, strike price, and volatility.
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 3
EMLYON Business School
1
Learning Objectives
6. Describe arbitrage bounds for option prices.
7. Explain why it is never optimal to exercise an American call option early on a non-dividend-paying stock, and why it is sometimes optimal to exercise an American put option early.
8. Explain the use of option modeling to value equity.
9. Describe how corporate debt can be viewed as a portfolio of riskless debt and a short position in a put option.
ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education
7 - 20 - 4
EMLYON