Black-Scholes Option Pricing Model was developed in the 1970s as a way to generate a legitimate and accurate valuation model for stock prices based on specific circumstances in the market and the stock options. It is the creation of economists Myron Scholes and Fischer Black who aimed to better forecast call options at various times within the option life cycle (PBS, 2000). According to the research, "this work involved calculating a derivative to measure how the discount rate of a warrant varies with time and stock price" (Rubash, 2012). Essentially, the formula is a method for analyzing and forecasting call and put options within specific market circumstances for individual stock options. It is often used in modern...
Since its inception, the formula has become a powerful tool that greatly strengthens the ability of investors to forecast just the right circumstances for their potential options. Here, "an investor can precisely replicate the payoff to a call option by buying the underlying stock and financing part of the stock purchase by borrowing" (PBS, 2000). As such, it is an essential tool for any modern firm or investor, especially in such a volatile market as the one we are currently witnessing today.
Black-Scholes model is essentially a formula used in the calculation of a theoretical call price for options. It is considered to be the fundamental model for pricing in the option market (Cretien, 2006). This model uses in its calculation the five main determinants of an option's price, which include stock price, strike price, volatility, time left until expiration, as well as risk-free, short-term interest rate (Hoadley, 2010). The computations executed
Derivative Securities Derivatives (Black Tuesday) Derivative Securities Derivative Securities It is difficult to understand or explain why throughout history some negative investor philosophies continually repeat themselves. Far too often investors miss blatant signs that lead to major collapses in the free markets. The purpose of this report is to discuss derivative securities in detail and how they affect those investor philosophies. Even unsophisticated investors understand that the stock and commodities markets are supposed to fluctuate
Black-Scholes and Binomial Models The variables that impact the pricing of options consist of the following basic factors: the underlying stock price, the strike price of the option, the time until expiration of the option, volatility, interest rates, and dividends (Folger, 2015). However, how these factors are perceived differs according to the model used to gauge the value of the option. The Black-Scholes model and the binomial model differ in their
Results from the study by Petersen, Ragatz and Monczka show that effective collaborative planning depends on information quality, and the trust level firms share. The authors purport: "Collaborative planning activities between supply chain partners are expected to lead to better performing supply chains" (Petersen, Ragatz & Monczka, Introduction section ¶ 1). In addition, numerous other researchers have also explored the perception relating to supplier alliances, that enhanced collaborative planning
2010 annual report of WestJet and discusses their information and measurement approaches on financial reporting. The following items from the annual report follow the measurement perspective on decision usefulness: Frequent Guest Program FGP), financial instruments and compensation plan. WestJet has "a frequent guest program that allows guests to accumulate credits that entitle them to a choice of various rewards, primarily discounted travel. Revenue received in relation to credits issued is
Money Management Basic financial literacy is sorely lacking in today's America, and the results affect us all. For some, basic financial literacy is a personal issue, and it is that, but it is also a social issue because high debt levels affect everybody when they contribute to economic volatility. Malcolm (2013) notes that the standards of education in money management tend to be low, which leads people with incoherent savings plans.
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