It was first proposed in 1979 and uses a "discrete time" or lattice-based model of the way price varies over time -- without using closed form solutions (Cox, et al., 1979). In actual usage, the BOPM is quite widely used because it handles a wide variety of conditions that other models do not account for -- largely because it is based on the description of an underlying instrument over a longer period of time, as opposed to a single point without a large number of variables. Scholars say that it is computationally slower than the Black-Scholes formula, but more accurate, specifically for longer-dated options on securities that have dividend payments, trade in multiple securities, or have a number of complicated features within their variables. The BOPM model works by tracing the options key underlying variables through a lattice tree, which identifies steps between variables over time. For example, each node in the tree represents a hypothetical (or possible) price at a given point in time, then solves based on a combination of those nodes (Conroy, 2003). Both the BOPM and the BS are based on the same assumptions of stock price and behavior, as well as risk-neutral valuation. BS implies volatility, and while one of the most critical parameters within option pricing, volatility cannot be directly observed and must be estimated, which is done more reliably by the BOPM. BS cannot be used to accurately price options with an American-style exercise since it only calculates the option price at one point in time -- the expiration. Because of the lattice structure, the BOPM makes it possible to check price at every point in an options life. Many scholars believe the BOPM to be superior,...
And Scholes, M. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy. 81 (3): 637-54, Retrieved May 2013 from: http://www.cs.princeton.edu/courses/archive/fall09/cos323/papers/black_scholes73.pdf
Houston's large supply of land means that demand growth primarily results in more construction, not higher prices" (McCullagh & Gilmer, 2008). However, it is important to realize that land supply is only one part of the reason that new home construction formed such a large part of the Houston housing market. Yes, Houston has more available surrounding land than almost any other major metropolitan area in the United States, but
Functional Perspective Though financial systems change over time, their functional perspectives do not. Operational financial systems are expected to be similar in all economies, hence, its necessitated reliability in the system. A functional perspective is mainly used in doing financial analysis in a financial system. It provides a foundation for referring to a country's financial system. The financial perspective also assists in evaluating the system actions. Using a financial perspective in
The exclusivity of these higher-end products and their cost structures also are deliberately now being created to ensure barriers to entry from mass merchandisers. The threat of a mass merchandiser dominating the supply chain and driving down costs to sell on brand equity alone continues to force marketers of key brands in this industry to concentrate on defensible differentiation. As a result of all these strategies and the inherent
Price Elasticity Airlines The piece "Airlines try cutting business fares, find they don't lose revenue" explains how major airline firms in 2002 cut their business travel fares in an attempt to generate more business "and bring back business travelers who are staying at home, buying in advance or running to discount airlines" (McCartney, S. November 22, 2002). Of particular interest in this dynamic is the effect on total revenue generation resulting
To avoid repeating negative historical experiences, regulatory regimes need to block the control and domination by networks/platforms. In the report, "Infrastructure and Development: A Critical Appraisal of the Macro Level Literature," Stephane Straub (2007) reported that at times, in some developing companies, "the hope of getting a fixed-line installed is a distant and costly dream" (p. 4). Meantime, the primary option for the individuals waiting for fixed-line telecommunications services
The algorithm can be your market eyes. it's effectively a trading assistant - a very diligent trading assistant... The downside is that it is also a very obedient trading assistant, so if you tell it to do something it might not have the intuition or the ability to veto you... obviously there are checks and balances to prevent anything bad from happening, but you do hear stories about people
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now