财务管理英文课件 (18)

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nReduce the higher taxes that result from fluctuating earnings. nInitiate compensation programs to reward managers for achieving stable earnings.
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18 - 2
Why might stockholders be indifferent to whether or not a firm reduces the volatility of its cash flows? If volatility is due to systematic risk, it can be eliminated by diversifying investors’ portfolios.
Price of Strike Stock (a) Price (b) $25.00 $25.00 30.00 25.00 35.00 25.00 40.00 25.00 45.00 25.00 50.00 25.00
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Exercise Value of Option (a) – (b) $0.00 5.00 10.00 15.00 20.00 25.00
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18 - 3
Reasons Risk Management Might Increase the Value of a Corporation n Increase their use of debt. n Maintain their optimal capital budget. n Avoid financial distress costs. n Utilize their comparative advantages in hedging, compared to investors. n Reduce the risks and costs of borrowing. Copyright © 2001 by Harcourt, Inc. All rights reserved.
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18 - 15
Call Premium Diagram
Option value 30 25 20 15 10 5
Exercise value Market price
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Байду номын сангаас
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18 - 10
n Out-of-the-money call: A call option whose exercise price exceeds the current stock price. n LEAPS: Long-term Equity AnticiPation Securities are similar to conventional options except that they are long-term options with maturities of up to 2 1/2 years.
18 - 1
Derivatives and Risk Management
CHAPTER 18
n Derivative securities n Fundamentals of risk management n Using derivatives to reduce interest rate risk
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18 - 7
Option Terminology n Call option: An option to buy a specified number of shares of a security within some future period. n Put option: An option to sell a specified number of shares of a security within some future period. n Exercise (or strike) price: The price stated in the option contract at which the security can be bought or sold.
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18 - 9
n Covered option: A call option written against stock held in an investor’s portfolio. n Naked (uncovered) option: An option sold without the stock to back it up. n In-the-money call: A call option whose exercise price is less than the current price of the underlying stock.
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18 - 6
What is the single most important characteristic of an option?
n It does not obligate its owner to take any action. It merely gives the owner the right to buy or sell an asset.
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18 - 5
What is an option?
An option is a contract that gives its holder the right, but not the obligation, to buy (or sell) an asset at some predetermined price within a specified period of time.
Call Option Price $ 3.00 7.50 12.00 16.50 21.00 25.50
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Exercise price = $25.
18 - 12
Create a table which shows (a) stock price, (b) strike price, (c) exercise value, (d) option price, and (e) premium of option price over the exercise value.
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18 - 13
Table (Continued)
Exercise Value of Option (c) $ 0.00 5.00 10.00 15.00 20.00 25.00
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Mkt. Price of Option (d) $ 3.00 7.50 12.00 16.50 21.00 25.50
Premium (d) – (c) $ 3.00 2.50 2.00 1.50 1.00 0.50
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18 - 14
What happens to the premium of the option price over the exercise value as the stock price rises? n The premium of the option price over the exercise value declines as the stock price increases. n This is due to the declining degree of leverage provided by options as the underlying stock price increases, and the greater loss potential of options at higher option prices.
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18 - 17
n Security buyers may borrow any fraction of the purchase price at the short-term, risk-free rate. n No penalty for short selling and sellers receive immediately full cash proceeds at today’s price. n Call option can be exercised only on its expiration date. n Security trading takes place in continuous time, and stock prices move randomly in continuous time.
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Stock Price
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18 - 16
What are the assumptions of the Black-Scholes Option Pricing Model? n The stock underlying the call option provides no dividends during the call option’s life. n There are no transactions costs for the sale/purchase of either the stock or the option. n kRF is known and constant during the option’s life. (More...)
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18 - 11
Consider the following data: Stock Price $25 30 35 40 45 50
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18 - 8
n Option price: The market price of the option contract. n Expiration date: The date the option matures. n Exercise value: The value of a call option if it were exercised today = Current stock price - Strike price.