Put option Essays & Research Papers

Best Put option Essays

  • Options - 2474 Words
    GSU, Department of Finance, AFM Spring 2014 - Chapters 10-11 / page 1 - Introduction to Derivative Markets FI 4200/AFM Characteristics of Options r Definitions and Positions: - A Call Option gives its owner for a specified time the right to purchase an underlying good at a specified price (= exercise price or strike price) - A Put Option gives its owner for a specified time the right to sell an underlying good at a specified price (= exercise/strike price) - An American...
    2,474 Words | 31 Pages
  • Dozier: Options - 1555 Words
    Dozier Since the acceptance of Dozier Industries’ bid, the company CFO has been exploring the methods available to best manage the exchange risk associated with the award payment being dispersed in British Pounds (GBP). He originally considered a forward contract or a spot contract, but is now investigating how currency options could help hedge against uncertain foreign exchange exposure. The CFO needs to decide whether or not options contracts might provide some benefit to hedge the currency...
    1,555 Words | 5 Pages
  • Stock Options - 848 Words
    STOCK OPTIONS - AN EFFECTIVE COMPENSATION METHOD Stock Options have become the greatest form of remuneration for big names in organizations across the United States (Hall, 2000). The senior executives, who are given this option, can buy shares of the company at what Hall (2000) describes as the “exercise price”. They could be given “at the money”, “out of the money” or “in the money” price (Hall, 2000). Stock Options are helpful in motivating the holders to perform for the benefit of the...
    848 Words | 3 Pages
  • Stock Options - 1216 Words
    Many years ago stock options were rarely used as incidental benefits for top executives. Nowadays, compensating employee whit stock options has become an increasingly common practice. Before the year 1996, only the intrinsic value method was used to record these transactions. This method distorted the issuer’s reported financial condition and results of operations, which could lead to inappropriate decisions taken by investors. Followed by the increased use of employee stock options and the...
    1,216 Words | 3 Pages
  • All Put option Essays

  • futures options - 1588 Words
    Walking Through Some Examples of Futures and Options Contracts – Speculation and Hedging As Dr. Cogley said in class the other day, sometimes futures contracts and options are hard to wrap your head around until you see them a few times. So I’ve written up some examples similar to those Dr. Cogley did in lecture, with a little more explanation about how we get the results that we do. But before we jump into that, we need to revisit our terms. 1. Forward contract: A buyer and a seller agree to a...
    1,588 Words | 7 Pages
  • Call Option - 1883 Words
    8.3.)An investor sells a European call option with strike price of K and maturity T and buys a put with the same strike price and maturity. Describe the investor's position. The payoff to the investor is - max (ST - K , 0) + max(K - ST, 0) This is K- ST in all circumstances. The investor's position is the same as a short position in a forward contract with delivery price K. 8 .4.)Explain why brokers require margins when clients write options but not when they buy options? When an...
    1,883 Words | 5 Pages
  • Option Valuation - 960 Words
    Option Valuation Chapter 21 Intrinsic and Time Value intrinsic value of in-the-money options = the payoff that could be obtained from the immediate exercise of the option for a call option: stock price – exercise price for a put option: exercise price – stock price the intrinsic value for out-the-money or at-themoney options is equal to 0 time value of an option = difference between actual call price and intrinsic value as time approaches expiration date, time value goes to zero...
    960 Words | 4 Pages
  • Option and Value - 1685 Words
    1. _____ is the rate of change of delta with respect to the price of the underlying asset. a. Gamma b. Theta c. Rho 2. The short term risk-free rate usually used by derivatives traders is b. The LIBOR rate 3. Duration of a ten-year 6% coupon bond with a face value of $100 is a. Less than 10 years. 4. Which of the following are always positively related to the price of a European call option on a stock? c. The volatility 5. When we talked about Vega hedging, if a portfolio...
    1,685 Words | 5 Pages
  • Exotic Option - 380 Words
    Do you Know? • What is Derivative Market? • What is Hedging? • What is OTC? • What is Exotic Option? Parisian Option Passport option Rainbow option Russian Option Shout Option Spread Option Parisian Option The pay off a standard European option only depends on the price of the underlying asset at the maturity date Passport option A Passport option grants its holder the right to engage in short/long trading strategy of his own choice A passport is a new...
    380 Words | 3 Pages
  • Share Options in the Major Stocks
    SHARE OPTIONS IN THE STOCKMARKET The principal business of stock exchanges is trade in physical shares, but they also trade in share options in the major stocks. An option gives the holder the right to buy or sell a share at a predetermined price at some point in the future – for example, the right to buy shares in three months’ time at a price set today. An option which gives the buyer the right to buy a share is a “call” option. An option which gives the buyer the right to sell a share is a...
    518 Words | 2 Pages
  • Sally Jameson Stock Options
    Student Number: Assignment Title: Course Code: Course Title: Section #: 999346845 Assignment 16 RSM 1331 Finance I: Capital Markets & Valuation 1 2 AM 3 PM 4 5 In submitting this work for grading, I confirm: • That the work is original, and due credit is given to others where appropriate • Acceptance and acknowledgement that assignments found to be plagiarized in any way will be subject to sanctions under the University’s Code of Behaviour on Academic Matters. Please pay attention to the...
    1,024 Words | 4 Pages
  • Michael Stevens Option Strategy
    Introduction Michael Stevens is a relatively new investor struggling to maintain profits in an uncertain economy. Recent conflicts and conflicting reports have left the Canadian Market muddled and somewhat divided. Michael capitalized on recent volatility in the market and has gained some unrealized profits. He sees a bullish economy returning in the near future but would like to ensure that his profits are maintained even through minor volatility for the next six months. He plans to do this...
    4,445 Words | 14 Pages
  • Real Options Alex - 12056 Words
    REAL OPTIONS: STATE OF THE PRACTICE by Alex Triantis, University of Maryland, and Adam Borison, Applied Decision Analysis/ PricewaterhouseCoopers1 n an economic environment characterized by rapid change, great uncertainty, and the need for flexibility, it has become increasingly important for corporate managers to use investment evaluation tools and processes that properly account for both uncertainty and the company’s ability to react to new information. Real options has emerged as an...
    12,056 Words | 48 Pages
  • Ebay Stock Options - 366 Words
    Because eBay is dependent on key personnel; and that, they had experienced some personnel turnover, they anticipated continued losses would result in significant harm (i.e., loss of future business). eBay’s future success depended upon their ability to attract, train, retain, and motivate various highly skilled personnel (e.g., technical, managerial, marketing and customer not be successful in attracting, integrating or retaining sufficiently qualified personnel. As a result of job candidates...
    366 Words | 1 Page
  • Call Option and Dividend Yield
    HW#4 1. A portfolio is currently worth $10 million and has a beta of 1.0. The S&P 100 is currently standing at 800. Explain how a put option on the S&P 100 with a strike price of 700 can be used to provide portfolio insurance. 2. “Once we know how to value options on a stock paying a dividend yield, we know how to value options on stock indices and currencies.” Explain this statement. 3. Explain how corporations can use range-forward contracts to hedge their foreign exchange risk....
    372 Words | 2 Pages
  • Stock option case study
    BDO Case Study – “Accounting for Stock Options” Congratulations, your firm has just won a new engagement for the December 31, 2012 audit of Stock It (the Company). You are the lead senior on the engagement and thus were delegated the task of auditing the client’s equity balances. In review, you noted that the client has a significant amount of stock options issued to their employees, a means that many start-up companies use to compensate employees and entice them to put in the effort to make...
    658 Words | 3 Pages
  • Call Option and Stock - 587 Words
    ------------------------------------------------- FE1 Bonus Test 1. This test is 45 minutes long and there are 6 questions. The test will be taken down after 46 minutes. 2. Each question carries 2.5 points. 3. Answer All questions 4. Students who attempts the test twice will be given zero credit. 1 The price of a stock is $50. The stock pays a dividend of $5 in 3 months. A 6-month European put option on the stock has a strike price of $48 and a premium of $4.38. The continuously compounded...
    587 Words | 3 Pages
  • Option and Dividend Yield - 962 Words
    Chapter 15 Quiz 15.1) A portfolio is currently worth $10 million and has a beta of 1.0. An index is currently standing at 800. Explain how a put option with a strike price of 700 can be used to provide portfolio insurance. Index goes down to 700 10*(800/700)= 8.75 million Buying put options= 10,000,000/800= 12,500 If you buy the options at 800, the value will be 12,500 times the index with a strike price of 700 therefore providing protection against a drop in the value of the portfolio...
    962 Words | 5 Pages
  • Call Option and Price - 438 Words
    Question 1: Consider an option on dividend-paying stock when stock price $30, the exercise price is $29, the risk-free interest rate is 5% p.a., the volatility is 25%p.a. and time to maturity is 4 months. Assume that the stock is due to go ex-dividend in 1.5 months. The expected dividend is 50cents. a. b. c. what is the price of the option if it is a European call? What is the price of the option if it is a European put? Use the results in the Appendix to this chapter to determine whether...
    438 Words | 2 Pages
  • Call Option and Price - 2255 Words
    0) r AV\5 ~t-r tc~1 J ACT 4000, FINAL EXAMINATION ADVANCED ACTUARIAL TOPICS APRIL 24, 2007 9:00AM - 11:OOAM University Centre RM 210- 224 (Seats 266- 304) Instructor: Hal W. Pedersen You have 120 minutes to complete this examination. When the invigilator instructs you to stop writing you must do so immediately. If you do not abide by this instruction you will be penalised. Each question is worth 10 points. If the question has multiple parts, the parts are equally...
    2,255 Words | 32 Pages
  • Call Option and Price - 2832 Words
    MIDTERM #1 Student: ___________________________________________________________________________ 1. You purchase one September 50 put contract for a put premium of $2. What is the maximum profit that you could gain from this strategy? A. $4,800 B. $200 C. $5,000 D. $5,200 E. None of these is correct The following price quotations on IBM were taken from the Wall Street 2. Journal. The premium on one IBM February 90 call contract is A. $4.1250 B. $418.00 C. $412.50 D. $158.00 E. None...
    2,832 Words | 10 Pages
  • Anomalies in Option Pricing - 6312 Words
    Anomalies in option pricing: the Black-Scholes model revisited New England Economic Review, March-April, 1996 by Peter Fortune This study is the third in a series of Federal Reserve Bank of Boston studies contributing to a broader understanding of derivative securities. The first (Fortune 1995) presented the rudiments of option pricing theory and addressed the equivalence between exchange-traded options and portfolios of underlying securities, making the point that plain vanilla options -...
    6,312 Words | 15 Pages
  • Derivatives Properties of Option - 2764 Words
    Chapter 1 to 3 Chapter 9 Revision on Financial Derivatives & Properties of Options Prices • What are financial derivatives? What are their roles in finance? • Give examples of derivatives and draw their profit diagrams. • Name some financial derivatives that are traded in Bursa Malaysia. 2 • Definition  A financial instrument that has a value determined by the price of something else Risk management. Derivatives are tools for companies and other users to reduce risks...
    2,764 Words | 18 Pages
  • Option vs Stock Investments
    20-14 International Capital Market (3IM) Lecture 9 Option versus Stock Investments • Could a call option strategy be preferable to a direct stock purchase? • Suppose you think a stock, currently selling for $100, will appreciate. • A 6-month call costs $10 (contract size is 100 shares). • You have $10,000 to invest. • Strategy A: Invest entirely in stock. Buy 100 shares, each selling for $100. • Strategy B: Invest entirely in at-the-money call options. Buy 1,000 calls, each selling for...
    573 Words | 3 Pages
  • Derivatives: Option and Binomial Tree
    FINM3405 Derivatives & Risk Management Tutorial 6 Reference Material Lecture 8 (class notes and lecture slides) Tutorial Questions Question 1 A stock is currently priced at $20. In any given 4-month period, stock price will either go up by 18.91% or down by 15.9%.1 The riskless rate of interest is 4% per annum continuously compounded. A European-style call option is written on this stock with a $12 strike price and 8 months to expiry. a) b) c) d) Use the delta-hedging approach to price this...
    1,033 Words | 4 Pages
  • Financial Options and Applications in Corporate Finance
    CHAPTER 8—FINANCIAL OPTIONS AND APPLICATIONS IN CORPORATE FINANCE TRUE/FALSE 1. An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time. ANS: True 2. The strike price is the price that must be paid for a share of common stock when it is bought by exercising a warrant. ANS: True 3. The exercise value is the positive difference between the current price of the stock and the call option’s strike price....
    1,667 Words | 8 Pages
  • Stock Market and Stock Option Plan
    Should the company implement the proposed employee stock option plan? In a typical stock option plan, the employee is offered a specific number of shares which he/she can exercise (buy) at some specified time in the future. The price at which the employee can buy the stock is equal to the market price at the time the stock option was granted (grant price). The employee's gain is equal to the market value of the stock at the time it is exercised, less the grant price. If the market price of...
    965 Words | 3 Pages
  • Option and Risk-free Interest Rate
    Question 1 Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. a. What is the price of the option if it is a European call? b. What is the price of the option if it is an American call? c. What is the price of the option if it is a European put? d. Verify that put–call parity holds. Question 2...
    395 Words | 2 Pages
  • Applications of Option Pricing in Corporate Finance
    Applications of option pricing in corporate finance Option pricing is used in four major areas of corporate finance: • Real Options Suppose a company has a 1-year proprietary license to develop a software application for use in a new generation of wireless cellular telephones. Hiring programmers and marketing consultants to complete the project will cost $30 million. The good news is that if consumers love the new cell phones, there will be a tremendous demand for the software. The bad...
    507 Words | 2 Pages
  • Black-Scholes Option Pricing Model
    Question: Discuss how an increase in the value of each of the determinants of the option price in the Black-Scholes option pricing model for European options is likely to change the price of a call option. A derivative is a financial instrument that has a value determined by the price of something else, such as options. The crucial idea behind the derivation was to hedge perfectly the option by buying and selling the underlying asset in just the right way and consequently "eliminate...
    1,490 Words | 5 Pages
  • Call Option and Lotus S Stock
    Keller Case 1. To analyze the profit and loss possibilities inherent in the option investment strategies, please perform the following analyses for call and put options on Lotus’s common stock that mature in February 1994 and that have an exercise price of $55 per share. a. Compute net profits and losses per share (actual dollar profit and losses, not rates of return) at expiration (February 19, 1994) for the following investment strategies: Buying a call option on Lotus’s stock;...
    524 Words | 2 Pages
  • Stock Options-Acc 499 Capstone
    Name April 10, 2011 ACC499-Accounting Capstone Professor According FASB, compensation plans include all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer’s stock. Compensation cost should be measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period, under the fair value...
    999 Words | 3 Pages
  • Chapter 14 Options and Corporate Finance
    CHAPTER 14 OPTIONS AND CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put option confers the right, without the obligation, to sell an asset at a given price on or before a given date. You would buy a call option if you expect the price of the asset to increase. You would buy a put option if you expect the price of the asset to decrease. A...
    4,419 Words | 22 Pages
  • Futures and Options Chapter 9 Answer
    CHAPTER 9 Mechanics of Options Markets Practice Questions Problem 9.8. A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using (a) the NASDAQ OMX and (b) the over-the-counter market for trading? The NASDAQ OMX offers options with standard strike prices and times to maturity. Options in the over-the-counter market have the advantage that they can be tailored to meet the precise needs of the treasurer. Their...
    3,055 Words | 10 Pages
  • Goldman, Sachs & Co. Nikkei Put Warrants – 1989
    Course: OFD Instructor: B. Hariprasad Assignment #1: Goldman, Sachs & Co. Nikkei Put Warrants – 1989 Section A Ankit Pandey Himanshu Agarwal Suchit Singh Problem Statement What should be the right pricing strategy for Nikkei Put Warrants (NPWs)? Structure of Nikkei-Linked Euro-Yen Transactions 1. The European bank sold a bond that promised to make annual interest payments in yen at a fixed interest rate. However, through a set of...
    912 Words | 5 Pages
  • Real Options in Telecommunication - Network Evolution Economics
    Real Options in Telecommunication Network Evolution Economics John M. Charnes∗ The University of Kansas School of Business—FEDS 1300 Sunnyside Avenue Lawrence, KS 66045 jmc@ku.edu Barry R. Cobb The University of Kansas School of Business—FEDS 1300 Sunnyside Avenue Lawrence, KS 66045 brcobb@ku.edu January 19, 2003 1 Introduction This document describes ongoing work to be performed on a research project during the period 16 September 2002 through 15 September 2003. In...
    4,576 Words | 19 Pages
  • Sally Jameson Valuing Stock Options in a Compensation Package
    Sally Jameson: Valuing Stock Options in a Compensation Package By Group 10 1. If we ignore tax consideration and assume that Sally Jameson is free to sell her options at any time after she joins Telstar, which compensation package is worth more? First scenario, if Sally chooses stock options and hold until maturity date. Ignoring the taxation and other constraints, the future value of cash compensation at the end of the 5th year will be 5000 * (1 + 0.0602) ^ 5 = 6697.44. We can easily form...
    1,045 Words | 3 Pages
  • Derivation and Application of the Black-Scholes Equation for Option Pricing
    Carleton University Honours Project Final Draft Derivation and Application of the Black-Scholes Equation for Option Pricing Author: Yeheng XU Supervisor: Dr. David Amundsen April 30, 2012 Abstract In this project, I will first study the concept of a stochastic process, and discuss some properties of Brownian Motion. Then I generalize Brownian Motion to what it called an Itˆ process. The above concepts will be used to derive the Black-Scholes Option Price o formula. Then an...
    10,688 Words | 42 Pages
  • Chapter 7 Currency Futures and Options Markets
    76 CHAPTER 7 CURRENCY FUTURES AND OPTIONS MARKETS This chapter describes foreign currency futures and options contracts and shows how they can be used to manage foreign exchange risk or take speculative positions on currency movements. It also shows how to read the prices of these contracts as they appear in the financial press. SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS 1. On April 1, the spot price of the British pound was $1.86 and the price of the June futures contract was $1.85....
    6,469 Words | 19 Pages
  • Eva Comparison with Direct Employee Stock Ownership and Option Plans
    EVA Comparison with Direct Employee Stock Ownership and Option Plans An employee stock ownership plan (ESOP) is a type of defined contribution benefit plan that buys and holds company stock. Employees do not actually buy shares in an ESOP. Instead, the company contributes its own shares to the plan, contributes cash to buy its own stock or has the plan borrow money to buy stock, with the company repaying the loan. All of these uses have significant tax benefits for the company, the...
    455 Words | 2 Pages
  • Finance: Comparing Option Price, Time to Maturity, and Strike Price
    FINS3635 – ASSIGNMENT (a) Comparing Option price, time to maturity, and strike price: 1. Option price against Time to Maturity, For a given strike price: i) APOL calls (K=40) and puts (K=40) (ii) SBUX calls (K=40) and puts (K=40) (iii) ABAT calls (K=5.00) and puts (K=5.00) 2. Option price against Strike Price, for a given maturity: i) APOL calls and puts ii) SBUX July 2011 calls and puts iii) ABAT 2011 calls and puts: (b) Observing the...
    1,341 Words | 5 Pages
  • Valuation-of-Undeveloped-Oil-Reserves-with-Option-Pricing-Model-Ogel
    About OGEL OGEL (Oil, Gas & Energy Law Intelligence): Focusing on recent developments in the area of oil-gas-energy law, regulation, treaties, judicial and arbitral cases, voluntary guidelines, tax and contracting, including the oil-gas-energy geopolitics. For full Terms & Conditions and subscription rates, please visit our website at www.gasandoil.com/ogel/. Open to all to read and to contribute Our aim is for OGEL to become the hub of a global professional and academic network....
    3,016 Words | 13 Pages
  • Sally Jameson: Valuing Stock Options in a Compensation Package (Abridged)
    Sally Jameson: Valuing Stock Options in a Compensation Package (Abridged) Sally Jameson, a second-year MBA student at Harvard Business School, was thrilled but confused. It was late May 1992, graduation was approaching, and she had finally landed the job of her choice. She had just finished an early morning telephone conversation with Bob Marks, the MBA recruiting coordinator at Telstar Communications, a large, publicly held multinational company. Mr. Mark had offered Ms. Jameson a unique...
    1,139 Words | 4 Pages
  • How Increasing Time to Maturity Affects Foreign Currency Option Value
    Here, it is important to distinguish clearly between American-style and European-style options. For American options, the effect is unambiguous: Increasing the time to maturity always increases an option’s value because it increases the uncertainty of the spot exchange rate at maturity. When this effect is combined with the fact that the holder of a 6-month option can always treat the option as a 3-month option, we clearly see that the additional 3 months of maturity cannot hurt the payoff to...
    1,140 Words | 3 Pages
  • The Purpose of This Case Study Is to Discuss the Issues Related to Stock Options and How They Should Be Accounted for
    The purpose of this case study is to discuss the issues related to stock options and how they should be accounted for. Introduction In the early 1990s, FASB proposed an accounting rule calling for corporations to recognize compensation expense for certain stock options when they were granted to executives and employees. This proposal was met with strong opposition from many different sources including: Congress who passed a resolution by vote urging FASB to drop the proposed standard,...
    776 Words | 3 Pages
  • How is It Possible For an Employee Stock Option to Be Valuable Even If the Firm’s Stock Price Fails to Meet Shareholders Expectations?
    (13-5) How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholder’s expectations? Employees have the option of buying stocks because stock options are in essence the right to buy a specified number of shares at a specified price known as the “strike price”, within a specified period of time. There are several ways an employee stock option could be valuable. The option pays off if, at option expiration, the stock price is higher...
    607 Words | 3 Pages
  • Solutions to end of Chapter Problems Part 2
    Fin 4910/6990 Further Questions Problem 7.19 (a) Company A has been offered the rates shown in Table 7.3. It can borrow for three years at 6.45%. What floating rate can it swap this fixed rate into? (b) Company B has been offered the rates shown in Table 7.3. It can borrow for 5 years at LIBOR plus 75 basis points. What fixed rate can it swap this floating rate into? (a) Company A can pay LIBOR and receive 6.21% for three years. It can therefore exchange a loan at 6.45% into a loan at LIBOR...
    6,408 Words | 26 Pages
  • Company Background of Hang Seng Bank
    FINA3304 Financial Markets Fall 2014 Group Case Study 2: Equity-Linked Investment1 Company Background Founded in 1933, Hang Seng Bank has principal business comprising retail banking and wealth management, commercial banking, global banking and markets, and private banking. It also offers a comprehensive range of renminbi services. With origins dating back to the 1800s, Hutchison Whampoa Limited is a multi-national conglomerate with operations spanning 56 countries worldwide. Its business...
    930 Words | 5 Pages
  • Asset Pricing - 11489 Words
    Contents Chapt~ 1 ExJ>ected Utilicy and Risk Aversion ..............................................................................• ! Chapt€11" 2 Mean-Varian.ce Analysis ................................................................................................ 6 Chapter 3 CAPM, Atbitmge, and Linear Factor Models .............................................................. 12 Chapter 4 Consumption-Savings Decisions and State...
    11,489 Words | 83 Pages
  • tiffany - 1776 Words
    Tiffany & Co. Transaction and Economic Exposure Tiffany & Co. Facing Exchange Rate Risks SI S Following Tiffany & Co. Japan’s new retailing agreement with Mitsukoshi Ltd. in July 1993, TiffanyJapan was now faced with both new opportunities and risks. With greater control over retail sales in its Japanese operations, Tiffany looked forward to long-run improvement in its performance in Japan despite continuing weak local economic conditions. However, Tiffany was now also faced...
    1,776 Words | 11 Pages
  • A Time Series Analysis of the Adjusted Closing Stock Prices
    Table of Contents 1. Introduction 2. literature review 3. Introduction 4. Methodology INTRODUCTION Google Inc. is an American multinational corporation which provides Internet-related products and services, including Internet search, cloud computing, software and advertising technologies. The company was founded by Larry Page and Sergey Brin while both attended Stanford University. Google was first incorporated as a privately held company on September 4, 1998,...
    2,192 Words | 9 Pages
  • Explain Why It Is Impossible to Derive an Analytical Formula for Valu
    Explain Why It Is Impossible to Derive An Analytical Formula For Valuing American Puts. Explain why it has proved impossible to derive an analytical formula for valuing American Puts, and outline the main techniques that are used to produce approximate valuations for such securities Investing in stock options is a way used by investors to hedge against risk. It is simply because all the investors could lose if the option is not exercised before the expiration rate is just the option price...
    1,792 Words | 5 Pages
  • individual assignment - 1485 Words
    BFF5915 – Individual Assignment Due Date: 5pm Friday 17th October This assignment is to be done individually. This means that you are required to answer the questions in the assignment on your own. The purpose of the assignment is to help you become more familiar with pricing options, using a specifically designed piece of software. The pricing of options is a very technical area, and most of us do not have the technical expertise to price options from first principals. Therefore in your...
    1,485 Words | 7 Pages
  • Finance: United States Dollar and Exchange Rate Risk
    INTERNATIONAL FINANCE FIN 423, Spring 2013, UK Case 2 questions: Tiffany & Co. --- 1993 Write-up Due: March 7, 2013 in class Your write-up should be eight to ten pages (double-spaced). If you provide information outside the case or the textbook, use a footnote to indicate the source. You can use pictures, but no more than four, and each figure should be no more than half a page in size. 1. Executive Summary. Briefly describe the history and business of Tiffany’s Co. What type of...
    705 Words | 2 Pages
  • Two-Step Tree and Butterfly Spread: Questions
    1. A company enters into a short futures contract to sell $5000. The current future price is 250 cents per pound. The initial margin is $3000 and the maintenance margin is $2000. What price change would lead to a margin call? Under what circumstances $1500 could be withdrawn from the margin account? 2. Stock is expected to pay a dividend of Tk 10 per share in 2 months and again in 5 months. The stock price is Tk 500 and risk free rate of interest is 8% p.a. with continuously compounded for...
    1,580 Words | 4 Pages
  • Cephalon case - 804 Words
    Cephalon Inc. - Case Questions 1. If Myotrophin is approved by the FDA, would you recommend that Cephalon follows a strategy of making an immediate onetime payment to purchase all of the rights to this drug rather than making a stream of payments under the milestone payment/interim license/purchase option agreement that was in place? Explain your reasoning. Answer: If Myotrophin is approved, I will recommend Cephalon to make a onetime payment to purchase the rights to this drug. First of all,...
    804 Words | 2 Pages
  • Financial Mathematics Essay - 3181 Words
    Financial Mathematics culminating in an Introduction to the Black and Scholes Model. 1. Background to Financial Mathematics i. Definitions of financial objects Within the financial services industry there are a multitude of different assets. An asset is a financial entity whose current value is known however in the future it is liable to change. Such assets include shares, commodities and currencies (a). There are many services available to investors who aim to make money from the...
    3,181 Words | 12 Pages
  • Multinational Business Finance “Eiteman”
    Multinational Business finance “Eiteman” problem 9 Giri Contrarian Ch 8 a. Giri believes in the Canadian Dollars, if the rate for the Canadian Dollar is going to rise he should buy a call option on Canadian Dollar and if the rate of the spot goes above the strike price can be profitable for him to buy the Canadian Dollar for less than it is actually worth. The put option may be the good choice if Canadian would depreciate against United States Dollars. b. The break-even point is the...
    377 Words | 2 Pages
  • Bear Sterns Rise and Fall
    ` H edging stocks with put option Dr. Hamid If you buy stocks and buy put options on them, you will always limit the losses to the cost of the put option no matter how low the stock price drops. Furthermore, it may pay to hedge even if the probability of a decline in stock price is low. Suppose you buy 100 stocks for $30 and buy 6 month put options on the stock for $2 each. You have hedged the stock. The options have exercise price of $30. There is a 50% probability each the stock will...
    510 Words | 2 Pages
  • Exam Mfe Formulars - 1395 Words
    aMFE Reference Nobody22 May 11, 2010 Variables S = Stock price F = Forward price K = Strike price C = Call option P = Put option r = Continuous risk-free interest rate δ = Continuous dividend rate t = Time σ = Volatility (Normal distribution) ∆ = Shares of stock to replicate option B = Amount to borrow to replicate option p∗ = % Chance stock will increase (using r) p = % Chance stock will increase (using α) q = % Chance stock will decrease u = Ratio increase in the price d = Ratio decrease...
    1,395 Words | 6 Pages
  • Hugo Boss Case Study
    Options 4/3/2012 Option: you have the choice to buy something for a certain price but if the price is less than that price forget about the contract. The most you ever pay is the contract price. You have the possibility of doing better. Nothing to lose only gain since you locked in a certain price; seller of contract can only do worse. The person whom makes the contract charges a price to enter into the contract, the seller keeps this contract. This price is called the premium, options...
    349 Words | 2 Pages
  • Practice Exercises Week 6
    Practice Exercises Week 6 Question 1 ( H17.12) A futures price is currently 60 and its volatility is 30%. The risk-free interest rate is 8% per annum. Use a two-step binomial tree to calculate the value of a six-month European call option on the futures with a strike price of 60? If the call were American, would it ever be worth exercising it early? In this case purchased to provide protection against the value of the portfolio u = e 0.3× 0.25 = 1.1618 ; d = 1 / u = 0.0.8607 ; and 1 − 0.8607 p=...
    1,122 Words | 5 Pages
  • Value at Risk - 6461 Words
    Derivative investment course work Topic: Discuss and investigate VaR and its characteristics when applied to options. You must produce example calculations on: European and American style options Long and short positions in these Portfolio of at least three different options (more is better) Introduction All financial institutions bear some sort of risk while dealing with different financial instruments, whether it be corporate treasurers, fund managers or financial institutions, they...
    6,461 Words | 23 Pages
  • Chapter 8 - 303 Words
    HOMEWORK CHPT 8 1. Which of the following statements is CORRECT? ,e. An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. 2. Which of the following statements is CORRECT? b. Call options generally sell at a price less than their exercise value. c. If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value. 3. Which of the following statements is CORRECT? d. The...
    303 Words | 2 Pages
  • HOMEWORK ACC - 349 Words
    "FASB Exposure Draft" Please respond to the following: From the first e-Activity, discuss how you would respond or comment to the Exposure Draft that you researched. Discuss whether or not you believe that Exposure Drafts add value to the accounting pronouncement development process. From the first e-Activity, discuss how you would respond or comment to the Exposure Draft that you researched. Discuss whether or not you believe that Exposure Drafts add value to the accounting...
    349 Words | 2 Pages
  • Financial Theory and Corporate Policy (4th Edition) Solution Chapter 7
    Chapter 7 Pricing Contingent Claims: Option Pricing Theory and Evidence 1. We can use the Black-Scholes formula (equation 7.36 pricing European calls. C = SN(d1 ) − Xe− rf T N(d 2 ) where d1 = ln(S/ X) + rf T + (1/ 2 )σ T σ T d2 = d1 – σ T Substituting the correct values into d1, we have d1 = d1 = ln(28/40) + .06(.5) + .5( .5)( .5) .5 .5 −.356675 + .03 + .25 = –.40335 .5 d2 = –.40335 – ( .5)( .5) = –.90335 Using the Table for Normal Areas, we have N(d1) = .5 – .1566 = .3434 N(d2) = .5 –...
    3,383 Words | 11 Pages
  • Sally Jameson - 1194 Words
    Sally Jameson Case Study Thomas Virolle Pablo Méndez Question 1 If we ignore tax considerations and assume that Sally Jameson is free to sell her options at any time after she joins Telstar she has several chooses. She can either choose to take the cash bonus, either take the options and sell it, or she can take the option and keep it until it is worth use. Let’s compare the situations : 1- She takes the cash bonus and decide to invest it in a 5-year bond which rate is 6,02%....
    1,194 Words | 5 Pages
  • A Course in Financial Calculus - 70787 Words
    This page intentionally left blank A Course in Financial Calculus A Course in Financial Calculus Alison Etheridge University of Oxford CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521890779 © Cambridge...
    70,787 Words | 264 Pages
  • Financial Engineering - 10816 Words
    Historical Degression Setting the Stage No-Arbitrage Bounds Relations between Puts and Calls Itô Refresher Appendix* Introduction Markus Leippold University of Zurich Chris Bardgett University of Zurich Elise Gourier University of Zurich Financial Engineering – September, 2012 Introduction 1 / 97 Historical Degression Setting the Stage No-Arbitrage Bounds Relations between Puts and Calls Itô Refresher Appendix* Outline 1 Historical...
    10,816 Words | 92 Pages
  • Barbera Arneson Case - 437 Words
    Decision: All other factors being equal, and based on the stock option packages only, I would accept the InterWeb offer of 60,000 shares at an exercise price of $0.10 per share because: Factors Considered: 1. Higher potential return on stock options 2. Larger ownership percentage at InterWeb Assumptions: 1. I made the assumptions that Barbara would work for at least 4 years with whichever company she chooses. 2. BioGene would continue to grow at an average rate of the past 4...
    437 Words | 2 Pages
  • Delta Neuttal Hedging - 5837 Words
    Fourth AIMS International Conference on Management December 28-31, 2006 1 Practical Considerations in the Application of Delta Neutral Hedging Paper Reference No: A553 T.V.Venkatarathna, Senior Consultant, Polaris Software Lab Limited, Survey No.203/Part, Manikonda IT Park, Hyderabad – 500 019 venkat.tv@polaris.co.in Many financial institutions hold derivative instruments in their portfolio whose value changes in response to a change in the value of the underlying security. The...
    5,837 Words | 18 Pages
  • Chapter 5- Share-Based Compensation Plans
    Chapter 5- Share-Based Compensation Plans According to Biswas,“It is common compensation practice to include share-based compensation packages to the total compensation package” (Biswas, 2013). Share based compensation plans give employees ownership in the company and the goal of share-based compensation plans is to align the interest of the shareholders, management, and employees. When employees have a stake in the company they are more likely to be concerned with the company’s profitability...
    753 Words | 3 Pages
  • Binomial Tree - 1399 Words
    Q3 i) From the put-call parity one can show that ci + Ke−rTi = S0 + pi ⇔ ci = S0 − Ke−rTi + pi Since pi ≥ 0 ⇒ ci ≥ S0 − Ke−rTi c1 ≥ S0 − Ke−rT1 c2 ≥ S0 − Ke−rT2 (1) (2) (2) − (1) : c2 − c1 ≥ S0 − Ke−rT2 − S0 + Ke−rT1 if r = const. ∧ T1 > T2 ⇔ c2 − c1 ≥ K(e−rT1 − e−rT2 ) > 0 ⇒ c2 > c 1 . Suppose one observes c2 < c1 in markets, then the following arbitrage strategy provides a risk free profit with zero net investments: Position Sell call c1 Buy call c2 Buy stock S0 Short sell stock S0 Borrow...
    1,399 Words | 7 Pages
  • Hil61217 Ch20 Case - 2344 Words
    hil61217_ch20_case.qxd 5/12/04 17:17 Page 46 ADDITIONAL CASES ■ CASE 20.3 PLANNING PLANERS This was the first time that Carl Schilling had been summoned to meet with the bigwigs in the fancy executive offices upstairs. And he hopes it will be the last time. Carl doesn’t like the pressure. He has had enough pressure just dealing with all the problems he has been encountering as the foreman of the planer department on the factory floor. What a nightmare this last month has been!...
    2,344 Words | 9 Pages
  • The Case of Cephalon - 654 Words
    The Case of Cephalon Based on the contract, the strike of the call options is $21.5, and capped at $39.5. Thus this is a combination of a call option at $21.5 and a put option at $39.5 two options, and the value is the difference between the two. Based on the Balck-scholes call formula, among which, ; 1)The price of call option with the strike price of $21.5: S=$20;K=$21.5;r=5.5%;T-t=0.5yrs;σ=75% 2)The price of put option with the strike price of $39.5:...
    654 Words | 2 Pages
  • Financial Management Chapter 7
    Fall 2013 Corporate Financial Management Due: Thursday, October 31st Chapter 7 & Options 1. Assume that you sold a 100 call for $10. Calculate your profit/loss per share if the future stock prices are $80, $90, $100, $110. What type of investor (bullish or bearish) sell a call? Why? 2. Assume that you bought a 110 put for $11. Calculate your profit/loss per share if the future stock prices are $ $90, $100, $110, $120. What type of investor (bullish or bearish) buy a put? Why?...
    358 Words | 2 Pages
  • advanced corporate finance - 4808 Words
    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 • • • • • • 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...
    4,808 Words | 38 Pages
  • Corporation Finance Analysis - 861 Words
    Risk Management – Chapters 20-22. Answers to questions Multiple Choice Questions Chapter 20 Understanding Options 1. The following are examples of disguised options for firms: I) acquiring growth opportunities II) ability of the firm to terminate a project when it is no longer profitable III) options that are associated with corporate securities that provide flexibility to change the terms of the issues A. I only B. II only C. I and III only D. I, II, and III 2. The owner of a regular...
    861 Words | 3 Pages
  • Sally Jameson - 3727 Words
    TEACHING NOTE Sally Jameson: Valuing Stock Options in a Compensation Package (Abridged) Objectives This case has two educational objectives. First, it serves as an introductory case on option valuation in which students can use market data to place a dollar value on an option they are likely to encounter in their business careers. As such, the case encourages a discussion of the application of option pricing models, such as Black-Scholes, and exposes students to popular misconceptions of...
    3,727 Words | 14 Pages
  • Submission 9 - 748 Words
    Week8 Ch 20: 5,11,15 5. Turn back to figure 20.1, which lists prices of various IBM options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following February expiration options, assuming that the stock price on the expiration date is $195. a. Call option, X = $190. b. Put option, X =$190. c. Call option, X = $195. d. Put option, X =$195. e. Call option, X = $200. f. Put option, X =$200. St =$195 COST PAYOFF PROFIT CALL 6.75 195-190=5...
    748 Words | 5 Pages
  • Financial Mgmt Chapter 3 Quiz
    A $1,000 face value bond has a 7.85 percent semi-annual coupon and sells for $982.50. What is the current yield? 7.61 percent 7.89 percent 7.82 percent 7.75 percent 7.99 percent Question 2: 1 pts A 7 percent coupon bond has a face value of $1,000 and pays interest annually. The current yield is 6.8 percent. What is the current price of this bond? $1,104.00 $978.41 $971.43 $1,068.00 $1,029.41 Question 3: 1 pts A 7.5 percent coupon bond is currently quoted at 89.3 and has a...
    3,609 Words | 19 Pages
  • Derivatives Assignment - 697 Words
     Chapter 14 14.3. Explain the principle of risk-neutral valuation. The price of an option or other derivative when expressed in terms of the price of the underlying stock is independent of risk preferences. Options therefore have the same value in a risk-neutral world as they do in the real world. We may therefore assume that the world is risk neutral for the purposes of valuing options. This simplifies the analysis. In a risk-neutral world all securities have an expected return equal to...
    697 Words | 6 Pages
  • Maxim Integrated Products, Inc
    Case: 9-4. Maxim Integrated Products, Inc. Problem Statement: Maxim Integrated Products, Inc. along with other organization has implemented expensing employee stock options as required by FASB Statement 123(R). The issue presented is whether expensing employee stock options under fair value rules accurately reflect the company’s true financial condition and what would be an appropriate way to assess the company’s performance when valuing the its stock. Case Data Maxim Integrated Products,...
    1,552 Words | 5 Pages
  • Market Indicators, Passive Management, and ETOs
    Definition of 'Market Indicators' A series of technical indicators used by traders to predict the direction of the major financial indexes. Most market indicators are created by analyzing the number of companies that have reached new highs relative to the number that created new lows, also known as market breadth. What is active management? Actively managed investment funds are, like their namesake, run by a professional fund manager or investment research team, who make all the investment...
    711 Words | 3 Pages
  • E09 G11 Sally Jameson Case
    E09-G11 Mridul Arora, Florent Bernard, Jacqueline Kwok, Pu Wang E09-G11 Sally Jameson Case 1. How much is the option compensation package worth With the 5-year T-Bill yield, we can calculate the rf rate, compounded continuously, input for the BlackScholes model. e5r = 1 + (5-year T-Bill yield) e5r = 1.0602 r = 0.0117 Exercise price X 35 Given by case text Current stock price Volatility of stock returns Time to maturity S ơ Ƭ 18.75 43% 5 r 6.02% 1.17% Given by case text Approximation...
    1,160 Words | 6 Pages
  • Sally Jameson - 945 Words
    To: Prof. Chalmers From: Travis Ramme and Meghan Smith Date: April 26th, 2007 Re: Ms. Chalmers’ Compensation Choices 1. Ignoring taxation and other constraints, Ms. Jameson is better off taking the options. The stock currently trading at $18.75 and the exercise price is $35. This may seem drastically far away. However, 5 year T-Bill rates are currently at 6.02%. Combined with a current stock volatility of approximately 42%, this allows each option to be valued at approximately $4.93....
    945 Words | 3 Pages
  • Derivatives Study Guide - 1535 Words
    1. Both forward and futures contracts are traded on exchanges. : False 2. Futures contracts are standardized; forward contracts are not. : True 3. The S&P500 index futures contract is a physical delivery contract. The pork bellies futures contract is a cash-settled contract. : False 4. An American option can be exercised at any time during its life. : True 5. A put option will always be exercised at maturity if the strike price is greater than the underlying asset price. :...
    1,535 Words | 5 Pages
  • Fin 534 - 1728 Words
    Question 1 Call options on XYZ Corporation’s common stock trade in the market. Which of the following statements is most correct, holding other things constant? Answer Correct Answer: The price of these call options is likely to rise if XYZ’s stock price rises. Question 2 Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the Correct Answer: All of the above. Question 3...
    1,728 Words | 9 Pages
  • Financial Management - Mid Term Exam
    Financial Management TA Mid-term Exam March 27, 2012, 9:3o - 11:00 1. True or False Comment on the correctness of the following statements with maximum 5 lines each. (20%) a) The IRR is larger than the discount rate if the NPV>0 False, there are projects with more than one IRR where the statement is not true and there are projects that have the inflow now and the outflows in future years where this relation is inversed. b) Yield to maturity is not a valid measure of expected return for a...
    1,314 Words | 4 Pages
  • Maths - 8111 Words
    Comparison between Numerical and Analytical solution of Black Scholes partial differential equation M.Sc. Project Report Submitted by Navjot Parmar and Kuldip Singh Patel 2010MAS7142 2010MAS7114 under the supervision of Dr. Mani Mehra Department of Mathematics Indian Institute of Technology Delhi April, 2012 Certificate This is to certify that the dissertation entitled Comparison between numerical and analytical solution of Black Scholes partial differential equation which is being...
    8,111 Words | 41 Pages
  • International Finance Question - 508 Words
    1. Dayton is a U.S based manufacturer of gas turbine equipment. This company has concluded negotiations for the sales of a turbine generator to Regency (U.K) for total payment of £3,000,000 which is due in 90 days Given the following exchange rates and interest rates, what transaction exposure hedging strategy is now in Dayton’s best interest? Spot rate $1.7620/£ Expected spot rate in 90 days $1.7850/£ 90-day forward rate $1.7550/£ 90-day...
    508 Words | 2 Pages
  • Butterfly Strat - 313 Words
    Session 3: Case Study Covered Call and Butterfly Strategies B. Butterfly strategy 1. What is the Butterfly strategy? * A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration but three different strike prices to create a range of prices the strategy can profit from. 2. What are its advantages and disadvantages? * Large profit percentage due to low cost involve in executing the position Limited...
    313 Words | 2 Pages
  • FIN516 W3 Homework Solutions
    Problem 20-6 on Call Options Based on Chapter 20 (Excel file included) You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly 3 months’ time. a) If the stock is trading at $55 in 3 months, what will be the payoff of the call? b) If the stock is trading at $35 in 3 months, what will be the payoff of the call? c) Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. Short call: value at...
    1,042 Words | 4 Pages
  • FINC6015 ASSIGNMENT 2 - 1784 Words
    Answer for question A Based on the trends in following portfolio and P/L chart during the period of January, February and March, it is clearly to see there were some hedging effects during those three months transactions, but our hedging transactions were not enough in January and February and the situation was improved during the period of March. The unhedged line is the market intrinsic value and the red line shows our real operation reflects on the portfolio. At the end of January, if...
    1,784 Words | 5 Pages
  • Financial Models in Excel - 1424 Words
    Exam, F65 April 2009 Exam F65: Financial Models in Excel Copenhagen Business School 1. April 2009 Open book exam, 4 hours Own computers allowed General information You must hand in your solution in Excel spreadsheet format. You must hand in 2 copies at floppy disks or CD-ROMs. Each of the exercises has been given an individual weight. These indicate to the student how much time should be used on each exercise. However, the final grade will not rely on these weights only, but might...
    1,424 Words | 5 Pages
  • Corp Fin Practice - 673 Words
    1. The Muggle Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 20% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 15%(APR), what is the current value of the stock? 2. Here are the possible projects for a firm: A B C D E F G 5 4 5 1 2 7 8 Initial investment 1.5 –0.5 1 0.5 0.5 1 1 NPV The firm has only twenty million to invest. What is the maximum...
    673 Words | 3 Pages
  • Finance-Mini Case - 1132 Words
    Chapter 8. Mini-Case Assume that you have just been hired as a financial analyst by Triple Play Inc., a mid-sized California company that specializes in creating high-fashion clothing. Because no one at Triple Play is familiar with the basics of financial options, you have been asked to prepare a brief report that firm’s executives can use to gain a cursory understanding of the topic. To begin, you gathered some outside materials on the subject and used these materials to draft a list of...
    1,132 Words | 6 Pages
  • Case 3 Compensation - 213 Words
    Case 07-4 Murray Compensation, Inc. Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2010. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21. Subsequent to the awards being granted, the stock price has fallen significantly. On January 1, 2012,...
    213 Words | 1 Page
  • Major Theories in Finance - 3809 Words
    Introduction 2 Major Theories in Finance Three major pillars of modern finance. Capital Asset Pricing Model (CAPM) Relates the risk of an asset to its required expected return. Dividend and Capital Structure Irrelevance (M and M) In a perfect world: i) A firm's share value does not depend on the firm's dividend policy. ii) The firm‟s total value does not depend on the amount of debt it has. Option Pricing Theory Can find the value of an option. Shares are a call option on the...
    3,809 Words | 41 Pages
  • Pixonix Inc - 1132 Words
    PIXONIX INC. - Currency Exposure Answers Question #1 The company Pixonix Inc is based in Canada and its revenues are based in CAD, however Pixonix dealt with US firms, so a majority of Pixonix's expenses were paid in US Dollars. Of key interest is the annual payment of US$7.5million at the end of January each year as well as the payments made at the end of June each year (which required the CAD to be converted to USD). Recently the CAD has been appreciating and positively affecting...
    1,132 Words | 4 Pages

All Put option Essays