case study is to apply the Black-Scholes model to calculate the strike price of the F.X. options and estimate the implied volatilities in practice‚ finally delta-hedged strategy will be described in detail in order to hedge F.X. option. The below formulas for Black-Scholes pricing are applied to the case study problems: Valuation of currency Europearn call option | Valuation of currency Europearn put option | C= S0*e^(-Rf*T)*N(d1) - Ke^(-R*T)*N(d2) | P=Ke^(-R*T)*N(-d2) - S0*e^(-Rf*T)*N(-d1)
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Practice Questions-“Real Options” Some questions may require you to use financial calculator or Excel. (In the final exam‚ for students without financial calculator‚ writing down the formula will be enough. However‚ those formulas must be correct to get full credit. Therefore‚ it is a good practice to check whether you are correct by using Excel for these practice questions) 1. How are real options different from financial options? 2. Consider the following project data: (1) A
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1 A call option price will increase‚ all else equal‚ when: a. the price of the underlying asset decreases b. the interest rates in the market decreases c. the time to maturity decreases d. the exercise price increases e. the volatility of the return of the underlying asset increases Answer E 2 The type(s) of risk that is (are) generally hedged with derivative contracts include all of the following except: a. commodity price risk b. foreign exchange risk c. interest rate risk d. property
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terms‚ once financing charges are met. OPTION PRICING: The buyer of a call option gets the right to buy the underlying the underlying asset at affixed price‚ where as the buyer of a put option obtains the right to sell the underlying asset at a fixed price. Alternatives to the binomial model In the binomial option pricing model‚ the underlying asset and risk free lending or borrowing are combined to create a portfolio that had the same cash flows as the option being valued; we called this portfolio
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Volkswagen and Porsche - Corporate Finance Case study: Mergers & Acquisitions of listed companies by Joachim Häcker What is the macro view of this case study? Small fish tries to eat big fish (financial figures are end of 2005 and rounded): VW: Market cap: €16 bn Book value: €24 bn Cash and cash equivalent: €8 bn (+€4 bn marketable securities) Porsche: Market cap: €11 bn Book value: €3.4 bn Cash and cash equivalent: €3.6 bn VW Porsche case study – by Joachim Häcker Seite 1
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Samsung Motors‚ which is actually owned by Pan-Pacific at certain exercise price on or before the maturity date. If the stock price of Samsung Motors decreases‚ Pan-Pacific will exercise the put option and earn a gain. Or if the stock price of Samsung Motors increases‚ Pan-Pacific will exercise the call option and earn a gain‚ too. In this way‚ Pan-Pacific‚ which is the shareholder of Samsung Motors‚ has been guaranteed by Samsung Electronics a certain rate of return. So there is no risk for Pan-Pacific
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Introduction JetBlue Airways Corporation‚ or JetBlue‚ is New York’s Hometown Airline. The airline was‚ incorporated in‚ 1998‚ is a passenger carrier company. The Company operates various kinds of aircrafts‚ including Airbus A321‚ Airbus A320 and Embraer E190‚ providing air transportation services across the United States‚ the Caribbean and Latin America. JetBlue is the sixth largest passenger carrier in the U.S. (ref). The airline’s business model places emphasis on product and culture differentiation
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Eun & Resnick 4e CHAPTER 8 Management of Transaction Exposure Three Types of Exposure Forward Market Hedge Money Market Hedge Options Market Hedge Hedging Foreign Currency Payables Forward Contracts Money Market Instruments Currency Options Contracts Cross-Hedging Minor Currency Exposure Hedging Contingent Exposure Hedging Recurrent Exposure with Swap Contracts Hedging through Invoice Currency Hedging via Lead and Lag Exposure Netting International Finance in Practice:
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cost of debt 12.00% Growth rate -4.06% Value of tax shield (perpetuity) 50.4 Value of "Additional assets" 25.0 Total value of MW 516.3 2. How would you structure an analysis of MW as a portfolio of assets-in-place and options? Specifically‚ which parts of the business should be
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payment. The position that Dell took was one of acceptance of efforts to develop a regulation to more accurately value and report the impact of employee’s stock options in financial statements. Nonetheless‚ Dell has a few reservations about illogical and impractical approaches proposed by the board. The company believes that stock options award should be regarded as compensation; however this understanding should not be exposed as an expense to the company‚ once this type of compensation is related
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