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Finally, The Following Formulas Will Be Entered The In The Corresponding ...
Finally, the following formulas will be entered the in the corresponding cells:
B17 =B11/B12
B18 =(EXP (B10*SQRT (B17)))
B19 =1/B18
B20 =(EXP (B9*B17)-B19)/(B18-B19)
B21 =EXP (-B9*B17)
The next stage is to set up a stock price tree this will generate various stock prices for example up and down prices at each step over the life of the option. The end result is a standard binomial model that can be adapted to fit any organisation. This is not the full formula; this is available in D'Urso (2005) journal article, and easily converts CRR binomial model into Microsoft excel spread sheet, this will be used to calculate the formula (D'Urso, J 2005).
Conclusions
The choice of model used is favoured by practioners, although it is not universally used. The questionnaires will help to identify the rationale behind this, and offer further discussion on the compared hedging options and alternatives.
Using the CRR binomial model to compare the two chosen methods of hedging equity default swaps and barrier options will reduce bias and increase the validity and accuracy of the findings. This will then be compared to the theory presented in the literature review.
Bibliography
Arnott, R. & Bernstein, P (2002) What Risk Premium is 'Normal'
Financial Analysts Journal, March/April 2002
Bostock, P (2004The equity premium: what level should investors require?
Journal of Portfolio Management, Winter 2004 v30 i2
Bryant, M (1998) The evolving role of the corporate treasurer
Management Accounting (British), Feb 1998 v76 n2
Bunn, P and Young, G (2004)
Bank of England, Quarterly Bulletin London, Autumn 2004.Vol.44, Iss. 3
Camara A (2005) Option prices sustained by risk-preferences
The Journal of Business, Sept 2005 v78 i5
Chance, D (1999) Research Trends in Derivatives and Risk Management Since Black-Scholes (Special Theme: Derivatives & Risk Management) Journal of Portfolio Management, May 1999
Davydov, D & Linetsky, V (2001) Pricing and Hedging Path-Dependent Options Under The CEV Process (constant elasticity of variance) Management Science, July 2001 v47 i7
D'Urso, J (2005) Valuing Employee Stock Options
The CPA Journal. New York: Jul 2005.Vol.75, Iss. 7
Lekkos, I & Milas, C (2004) Common Risk Factors in the US and UK Interest Rate Swap Markets The Journal of Futures Markets Vol.24, Iss. 3
Saunders, M. et al (1997) Research Methods For Business Students
Pitman Publishing. London
Young. C (1993) What's the right Black-Scholes value?
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