Forward start option and a chooser option, Financial Management

When a company commits (implicitly or explicitly) to granting at-the-money options to employees in the future then we can view them as a forward start options.

a) Explain the difference between a forward start option and a chooser option.

b) Describe carefully how the chooser options work and what the payoff of a simple chooser option is at the time, t1, when some choice is made.

Explain what the variable T2, t1, and X represents in the formula given during classes for a chooser option.

c) Calculate the value of a simple chooser option with a time to expiration of 7 months and time to choose between a put or call equal to three months. The underlying stock price is 54, the strike is 54, the risk free interest rate is 8.3% (CONT) per annum, and the volatility per annum is 27%.

d) Use the put-call parity for vanilla European option to show that a chooser option is a package consisting a call option (specify the strike price and the maturity) and put options (specify the number of puts, strike price and maturity).

e) Use the result in bullet point d) to prove the formula given during classes.

 

Posted Date: 2/23/2013 5:02:05 AM | Location : United States







Related Discussions:- Forward start option and a chooser option, Assignment Help, Ask Question on Forward start option and a chooser option, Get Answer, Expert's Help, Forward start option and a chooser option Discussions

Write discussion on Forward start option and a chooser option
Your posts are moderated
Related Questions
Question- Under a hire purchase deal structured by X Finance Ltd. for Y Corporation, the finance company has offered to finance the purchase of equipment that costs Rs. 200 lakh.

To obtain an investment credit rating and make the transaction attractive to the investors, some type of credit enhancement procedure is usually necessary. In ord

Explain cross-hedging and discuss the factors determining its effectiveness. Answer: Cross-hedging includes hedging a position in one asset by taking a position in another asse


Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Restatement of investment appraisal In the following solution the tax allowances in relation to the initial outlay on equipment are evaluated separately. Other approaches are a

Bond Indenture An indenture builds the formal conditions of a lending relationship between a borrower and a lender. It is a written record, and it outlines most important func

#question how to collect real irr %..

What are the time dimensions of the income statement, the balance sheet, and the statement of cash flows? Hint: Are they videos or still pictures?  Explain. Sol. The i

Q. Show Certificates of Deposits? Certificates of Deposits: Certificate of deposits is papers issued by banks acknowledging fixed deposits for a specified period of time. CPs i