......................... 5 2. FUTURES .................................................................................................................... 11 3. OPTIONS..................................................................................................................... 26 4. TRADING STRATEGIES USING FUTURES AND OPTIONS ........................... 40 5. RISK MANAGEMENT IN DERIVATIVES............................................................ 50 6. SETTLEMENT OF DERIVATIVES .....
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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. At this amount‚ Ms. Jameson’s options would be presently worth $14‚790 were she to sell them. Where she to hold them instead
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Hide | | | | PART A: Discuss the following in relation to the standard: 1. What was the rationale for the introduction of an accounting standard covering share based transactions? The share-based transaction‚ such as share options for employees‚ was not attributed a cost in the past although the use of such equity instruments was widespread. As a result‚ the AASB 2 Share-based Payment was introduced to force entities to incur a cost the transaction. Moreover‚ the treatment
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See attached. 4. Show how the total CAD cost at the end of January of hedging with an option varies under the three scenarios. (The total cost includes what you pay for the USD and what you pay for the option. You can combine this with the table in question 2.) Do you use a call or put option? Call option—pay 1.73/100 per unit in the contract (7.5m)‚ in CAD → CAD 129‚750. If exercise the call option‚ pay CAD 7‚012‚500. Total is CAD 7‚142‚250. 5. Should Pixonix hedge? (A sentence or two
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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 market value of an option depends in part on the option’s
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harder to drive up profits. Stock option plans are different from stock award programs because stock option plans present employees with the option to purchase stock whereas stock award programs are grants of stock that are subject to certain conditions. Stock option plans have grown in popularity and are now an essential piece of any total compensation plan for senior management‚ executives‚ and key employees. Stock option plans give employees the option to purchase a specified number of shares
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forward 1.3 The one-step binary model 1.4 A ternary model 1.5 A characterisation of no arbitrage 1.6 The risk-neutral probability measure Exercises Binomial trees and discrete parameter martingales Summary 2.1 The multiperiod binary model 2.2 American options 2.3 Discrete parameter martingales and Markov processes 2.4 Some important martingale theorems 2.5 The Binomial Representation Theorem 2.6 Overture to continuous models Exercises Brownian motion Summary 3.1 Definition of the process 3.2 L´ vy’s construction
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The six forms of deferred (stock) compensation include: Incentive stock options‚ Non-statutory stock options‚ Restricted stock‚ Phantom stock plans‚ Discount stock options‚ and Stock appreciation rights. Incentive stock options entitle executives to purchase their companies’ stock in the future at a predetermined price. Compared to incentive stock options‚ non-statutory stock options do not qualify for favorable tax treatment. Executives’ pay income taxes on the difference between the discounted
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On January 1‚ 2006 Sooner or Later Inc. granted $1‚000 at-the-money employee stock options. To ensure that the company can afford to compensate their employees based on their financial performance the award will only be absolute if the revenue over the following three years is greater than 10 million dollars and if the employees are still employed with the company. Sooner or Later’s management believes that the company will have revenues in excess of 10 million dollars over the next three year period
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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! Fortunately
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