Problem Set 1: Options 1. The strike price of a call option on GM common stock is $50. a) What is the payoff at expiration of this call if, on the expiration date, GM stock sells for $45? b) What is the payoff at expiration of this call if, on the expiration date, GM stock sells for $55? c) Draw the payoff diagram for this option. 2. Use the Black-Scholes model to price a call with the following characteristics: Stock price = $65 Strike price = $70 Time to expiration
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Seminar Summer Term 2012 Practical Financial Engineering ASIAN OPTIONS By Ahmed Mahmoud Harris Rahim Hudson Joel A Seminar Thesis Submitted to the Faculty of Finance and Economics, University of Ulm in Partial Fulfillment of the Requirement for a Masters Degree in Finance Master of Science University of Ulm Ulm, Germany 5th July 2012 DECLARATION We hereby confirm that the seminar thesis is our own work and that we have used only the stated literature and other means.
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Case Synopsis: Baffinland Iron Mines Corporation Set in 2010 against the backdrop of the global iron ore industry, the case is about Baffinland Iron Mines Corporation, which is caught in a tug of war between Nunavut Iron Ore Acquisition Inc. and Arcelor-Mittal. Both Nunavut and Arcelor-Mittal have their eyes set on Baffinland's Mary River project, which consists of seven deposits and reserves of 865 million tonnes of high grade, direct shipping iron ore in deposits 1-3 alone. The Mary River project
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Option Pricing: A Simplified Approach† John C. Cox Massachusetts Institute of Technology and Stanford University Stephen A. Ross Yale University Mark Rubinstein University of California, Berkeley March 1979 (revised July 1979) (published under the same title in Journal of Financial Economics (September 1979)) [1978 winner of the Pomeranze Prize of the Chicago Board Options Exchange] [reprinted in Dynamic Hedging: A Guide to Portfolio Insurance, edited by Don Luskin (John Wiley and Sons 1988)] [reprinted
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Three Options and Corporate Finance: Basic Concepts Sixth Edition 23 Prepared by Gady Jacoby University of Manitoba McGraw-Hill Ryerson © 2005 McGraw Hill Ryerson Limited 23-1 Chapter Outline 23.1 Options 23.2 Call Options 23.3 Put Options 23.4 Selling Options 23.5 Stock Option Quotations 23.6 Combinations of Options 23.7 Valuing Options 23.8 An Option-Pricing Formula 23.9 Stocks and Bonds as Options 23.10 Capital-Structure Policy and Options 23.11 Mergers and Options 23.12 Investment
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Background Information MoGen is a leading company in the recently surging biotechnology industry that specializes in human therapeutic drugs that help offset the damaging effects of chemotherapy for cancer patients. The business model for all biotech companies is fairly similar: through extensive R&D, create new medical drugs, obtain FDA approval and product patents and launch them into the market. In order to achieve profitability and increase the likelihood of FDA approval
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ScholarlyCommons Wharton Research Scholars Journal 5-1-2006 Valuation of Venture Capital Securities: An Options Based Approach A. Lloyd Thomas University of Pennsylvania This paper is posted at ScholarlyCommons. http://repository.upenn.edu/wharton_research_scholars/36 For more information, please contact repository@pobox.upenn.edu. Wharton School Valuation of Venture Capital Securities: An Options Based Approach Disciplines Business | Finance and Financial Management This journal article
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Problem Statement & Issues3 Analysis of Merseyside & Rotterdam3 The Merseyside Proposal & Analysis3 Static NPV4 Option to Switch to Japanese or German Technology4 The Rotterdam Proposal & Analysis5 Static NPV5 Option to Switch to German Technology5 Qualitative Considerations6 Recommendation7 Appendix I – Black-Scholes Model for Japanese Option8 Appendix II – Merseyside Margrabe Model for German Option8 Appendix III – Merseyside Assumptions9 Appendix IV – Merseyside Discounted Cash Flow Analysis9
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Copyright c 2006 by Karl Sigman 1 Geometric Brownian motion Note that since BM can take on negative values, using it directly for modeling stock prices is questionable. There are other reasons too why BM is not appropriate for modeling stock prices. Instead, we introduce here a non-negative variation of BM called geometric Brownian motion, S(t), which is defined by S(t) = S0 eX(t) , (1) where X(t) = σB(t) + µt is BM with drift and S(0) = S0 > 0 is the intial value. Taking logarithms yields
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Discussion Issues and Derivations What is the cost of using excess capacity? Firms often use the excess capacity that they have on an existing plant, storage facility or computer resource for a new project. When they do so, they make one of two assumptions: 1. They assume that excess capacity is free, since it is not being used currently and cannot be sold off or rented, in most cases. 2. They allocate a portion of the book value of the plant or resource to the project. Thus, if the plant has a
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