T. Arnold's A Pragmatic Guide to Real Options PDF

By T. Arnold

ISBN-10: 1137391162

ISBN-13: 9781137391162

ISBN-10: 134948301X

ISBN-13: 9781349483013

Aimed at practitioners with no previous services within the subject, this book helps readers build simple actual strategies types to help in decision-making. Providing a pragmatic and informative method, the authors introduce easy chance theories, before placing those theories right into a real-world context.

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Extra info for A Pragmatic Guide to Real Options

Example text

00 and the goal is to look at the possible prices that may exist six months from today. 88473). 33% (let P(D) be the probability of D). 24). 1. The spot price is in the box in the upper left-hand side of the table. 51 is in the box immediately to the right of the spot price. 24 is in the box immediately to the right and down one row relative to the spot price. This is how price movement is demonstrated in a binomial tree. Each incremental price increase moves one box to the right and each incremental price decrease moves one box to the right and one row below.

Consider two portfolios with stock options. One portfolio has a European style call option with a strike price of X and a bond that 50 A Pr agmatic Guide to Real Op tions will be worth X at the maturity of the option (call this Portfolio One). The other portfolio has a European style put option with a strike price of X and one share of stock upon which the call and put options apply (call this Portfolio Two). In the two portfolios, the call option and the put option have the same maturity. At option maturity, if the stock price is greater than X, Portfolio One will be equal to the stock price because the call option is exercised and the stock is purchased from the funds provided by the bond proceeds of X.

E.. , like a short position on a call option in which the strike price is below the spot price). If a firm is the short position on a call-like real option, the value of giving such an option should revert to the short position. , receives an option premium). In general, a firm should always be aware of when it provides an option to another party. The option provided is valuable and should not be given away for free. Two other option pricing components that are not part of a financial option contract need to be discussed.

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A Pragmatic Guide to Real Options by T. Arnold


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